Deficit Pushes Senate to End Ethanol Thieving of Taxpayers

The monumental deficit has pushed the Senate to repeal the $5 billion of tax credits and subsidies per year for corn growers, ethanol refiners, and gasoline blenders.  A tariff of $0.54 per gallon on imported ethanol would also be eliminated.  38 Democrats, 2 independents, and 33 Republicans voted to end these pointless subsidies which had wrongly been sold as a path to cleaner skies, energy independence, and a means to reduce CO2 emissions.  I have long pointed at these subsidies, along with the mandate for ethanol production still required by the insane Renewable Fuel Standard law, as a clear sign of Congressional and Presidential perfidy and a determination to rob the taxpayers blind for naked political power.  For more than 30 years, the attitude was clearly let the General Welfare be damned as the votes of special interest groups were bought. 

The repeal bill was sponsored by Senators Tom Coburn of Oklahoma and Dianne Feinstein of California.  14 Republicans and 13 Democrats opposed the 73-27 vote repeal action.  Obama and his Sec. of Agriculture, Tom Vilsack, still oppose the end of these deleterious subsidies, claiming they are needed to reach Obama's imagined plan to reduce oil imports by one-third by 2025. The House has not yet voted on ending these ethanol subsidies and will reject the Senate bill because tax bills are constitutionally required to be initiated in the House of Representatives.  Fortunately, the ethanol subsidies will expire at the end of this year unless the House and Senate renew them.  This Senate vote makes it unlikely that it will renew this special interest travesty.

The ethanol subsidy is a $0.45/gallon of ethanol tax credit given against the excise tax of $0.184 per gallon of gasoline paid by gasoline blenders such as Valero and Marathon Oil.  This allows the blenders to pay more for corn ethanol made by such companies as Archer-Daniels-Midland and to compete for corn used as food or as livestock feed. 

The overall effect of a repeal of the subsidies upon food and feed prices will be minimal, since the mandate for ethanol use in fuel by the Renewable Fuel Standard law passed by the last Democrat Congress requires 12.6 billion gallons of ethanol use in fuel this year and up to 15 billion gallons in 2015.  By 2022, 36 billion gallons of so-called renewable fuel must be blended into gasoline, though only 15 billion gallons of that can be conventional corn-derived ethanol.  The remainder is somehow magically supposed to come from other low-carbon biofuels, such as switchgrass, which as yet produce a negligible 3 to 4 million gallons a year of ethanol or fuel in expensive pilot plants.

This mandate and the subsidies have caused the price of corn to be over $7/bushel all spring, which is twice the price of a year ago.  The subsidy and the high price of oil has caused blenders to use a billion gallons more corn ethanol than they were required to use.  This put still more pressure on corn, corn products, and meat products.  On Friday, buyers bought corn in the Toledo, Ohio grain trading hub at $7.35 per bushel.  A desperate turkey grower even offered $8.37/bushel of corn and got few offers of corn at that price.  Corn supplies are expected to be at a 15-year low in late August.  This may force some makers of corn-derived ethanol to shut down their plants.

The impact of ethanol from corn on the market and on some states can be judged from the graphic below from the 17 June Wall Street Journal:

Note that the food, seed, and industrial use of corn has grown very little since 2000 and the use in feed and residual use has shrunk since 2005 due to the increased cost of corn brought on by the huge increase in ethanol production since about 1998.  Iowa, the first major event for presidential candidates produces 21% of all U.S. ethanol, which is more than twice the production of any other state.  It is no accident that so much of the Iowa corn production is bought for the purpose of ethanol production.  The subsidy takers know how to put the political pressure on.  About 5 billion bushels of corn, or 40% of all corn production, is used to produce ethanol.  The great growth in corn production that has resulted has displaced other food crops and led to price increases severe enough that the World Bank and other international institutions have called for an end to corn ethanol subsidies.

The end effect due to the continuing ethanol in fuel mandate will be continued very high corn prices.  The income tax taxpayer will be relieved of a burden, but that burden will be shifted to the consumer.  It is better that the burden be on the consumer, which is a much broader base of people than the minority who pay federal income taxes.  It would be better yet if we removed the renewable fuel mandate and simply allowed the free market to figure out which fuel resources will be used.  Obama's centrally-planned economy will be a disaster just as all prior central planning has historically led to catastrophe.  The last place a catastrophe will come from will be man-made global warming due to CO2 emissions.

Renewable Power in Scientific American

The March 2009 issue of Scientific American has a brief article called "A Concise Guide to Renewable Power" by Matthew L. Wald, a reporter at the New York Times. His article starts:

Renewable energy, such as from photovoltaic electricity and ethanol, today supplies less than 7 percent of U.S. consumption. If we leave aside hydroelectric power, it is under 4.5 percent. Globally, renewables provide only about 3.5 percent of electricity and even less of transportation fuels.

It sure is strange to see someone published in Scientific American claiming that ethanol is a renewable fuel, given that it does not result in a net gain of energy. In addition, it brings the added baggage of making our food costs substantially greater and of using up many other resources to no advantage except one of more income for some farmers and for ADM and other subsidized ethanol refiners.

I should not forget that many politicians love the votes they are buying from the special interest groups benefiting from ethanol mandates. Despite the fact that these mandates clearly hurt most Americans and do not serve the purposes used to justify them, Congress still has not revoked the foolish ethanol mandates and subsidies.

Ethanol From Corn Government Mandates

The Federal Government wants to use hundreds of billions of dollars in so-called stimulus spending to counteract the housing and financial problems caused by governments and to bolster many weak companies, some over-paid union workers and their over-paid union bosses, and those state governments which were most irresponsible in their spending. Do you suppose that there will be an ounce of wisdom in how the tax money of the responsible and competent will be used? Or, will the decisions be made simply to support the political careers of our elected politicians?

The answer is clear and can be observed from many past experiences and the direction many politicians have already signaled that they are taking. Among the signs, we should note that it was just a short while ago when the politicians were convinced, or tried to convince us, that ethanol refined from corn was the answer to energy independence and to air pollution. Science has clearly since, and had already in part at the time, shown this claim to be false. All the ethanol mandates and subsidies have achieved is to increase our gasoline costs, increase our food bills, increase the tax bill and the deficit, cause farmland prices to go up, made bundles of money for ADM and some farmers, hurt ranchers and other meat producers, and left many poor people in the world more hungry. This being the clear case, should we not expect our politicians to en masse rush to pass new legislation to remove the gasoline mandates and to remove the offending subsidies, both of which are clearly contrary to the general welfare?

Of course, we should expect this, if we believed that the politicians actually cared for the general welfare, which they cite as the reason for almost every piece of legislation. We understand that the welfare of each and every one of us individuals is not high on their list of values, however. So it is no surprise that the absurd ethanol mandates and subsidies are still on the books and are still hurting all of us who are not corn farmers, owners of ADM, or politicians. Knowing this, why on earth do we stand by and not only not squawk about this ethanol scam, but we are allowing the Federal Government to create many new massive frauds in the name of a recession stimulus package.

The Federal Government under both Hoover and FDR provided many stimulus packages, which did not only not prevent the Great Depression, but actually greatly prolonged it. They created massive uncertainty for investors by trying to pick the winners and the losers with constantly changing rules, just as Bush and Obama have done or are about to do. Hoover and FDR spent massive amounts of tax money and gave it to the unproductive, the incompetent, and the lazy, while taking it from the productive, the competent, and the hard-working. This is a sure way to destroy an economy and market system which a recession has momentarily staggered. Bush and Obama wish to do the same thing Hoover and FDR did. This is a repeat of history, in which a pragmatic Republican starts a mess and a socialist Democrat comes to the "rescue", only to make the mess much worse, because socialism is a massive loser to capitalism, even when it is crippled by unprincipaled pragmatism.