The shocking truth about ethanol subsidies

Some think that because corn gets subsidies (as all crops do) that this should be added into the support of the new ethanol industry. Okay, lets's do that, add in all the crop subsidies for corn to the excise tax credit to fuel blenders of $.46 which is intended to return a tax on petroleum products paid by gasoline blenders for every gallon of ethanol a non petroleum product, they blend with gasoline.

Now the total subsidies for corn (this includes sweet corn as well as field corn for animals which is the feed source for ethanol) in 2007 came to a little over $2 billion. Quite a lot, right? Well, American farmers produced over 13 billion bushels of corn that year. So the subsidy figure per bushel was $.15665 per bushel. (actually, you'll see at the link that this is a lower subsidy per market value of the commodity than either wheat or cotton). Since ethanol distillers produce about 2.8 gallons of ethanol per bushel, that figures out to about 5.6 cents per gallon. ... No,, that's not a typo, it's 5.6 cents per gallon of ethanol.. Add that to the $.51 per gallon Federal petroleum excise tax credit (for 2007) and you get a total of $.566 government support per gallon (in 2008 and beyond that figure would be $.516 : .46 + .056).

Now what does that 52 cents a gallon get us, other than a gallon of ethanol? Well, Fancisco Blanch, Commodities Strategist for Merrill Lynch, has said that the presence of ethanol in the market, competing with gasoline, has kept the price of gas down about 15% (because of something called the Elasticity of Demand for gasoline). At the peak of gas prices a few weeks ago that would mean instead of $4.10 a gallon the price would have been $4.70 a gallon! The difference being $.60. Right now instead of $3.89 we would be paying $4.47 a gallon or an extra $.58 a gallon. Either of those figures (the $.60 or $.58 difference we would be paying if ethanol was not competing with gasoline) is greater than the sum of the corn subsidy and the Fed PEtroluem excise tax credit $.516 ($.46 + $.056 = $.516).

But the difference is much more than 60 cents or 58 cents a gallon. The difference really is that we did not go into a depression this year because somewhere between $4.40 and $5.00 a gallon people would have so curtailed their spending that we would be sliding into a depression right now. So all in all the 51.6 cents a gallon support for ethanol has proved to be a good deal. Not just because it is now saving us 58 cents a gallon but it has prevented millions of Americans from being out of work. The EPA recognized this when it turned down the Texas Governor's request to roll back the Renewable Fuel Standard goals. They knew that the result would be to drive gas prices up in the future even more and also drive up the cost of everything else (like food) that is affected by the price of gas.

We do not want to drive down demand for gasoline by going into a depression. this is not a smart way to reduce gasoline prices. Also, going into a depression will delay the adoption of important technologies required to achieve even greater independence from fossil fuels: plug-in hybrids and fuel cell technologies. these are important technologies the adoption of which we do not want to delay.

the only industry doing well, is for once, grain farmers. Anecdotal info, I add as a disclaimer, but my farming friends are pretty happy that they can actually make a living these last few years.

Lends a little credence to this statement:

The difference really is that we did not go into a depression this year because somewhere between $4.40 and $5.00 a gallon people would have so curtailed their spending that we would be sliding into a depression right now. So all in all the 51.6 cents a gallon support for ethanol has proved to be a good deal. Not just because it is now saving us 58 cents a gallon but it has prevented millions of Americans from being out of work. The EPA recognized this when it turned down the Texas Governor's request to roll back the Renewable Fuel Standard goals.

I, for one, am looking forward to ethanol from other biomass sources, sugar beets and sorghum.

Unfortunately, those sources don't have nearly the lobbying clout as corn producers, seed companies, corn farmers (multi-national corporations among them) and agricultural chemical corporations.

The boat is taking on water. They are sinking. They are arguing about something. Oh, there is a fourth man bailing water out of the boat as fast as he can with a pail.

Two of the men are arguing about how to better bail water from the boat. One says he can build a better bigger bucket that would bail water faster. THe other man says he has a better idea, he can build a lighter bucket with which you can bail water faster. The third man is feverishly working with some wires and some pipe. He keeps saying: "just give me a few days and I'll have this electric pump done and it'll work better than anyof you guys bailing manually." Periodically, the men look scornfully at the guy bailing water and point there fingers at him and yelling at him they say he's no help at all in trying to figure out the very best way to bail water. And all the while the boat is sinking.

Occasionally, the guy bailing water (let's call him 'practical man') turns to the arguing men and yells "Dammit, were taking on water and were gonna sink if you guys don't help me here. I don't give a damn which of you is right. It doesn't matter, were going to be under water before any of you gets your buckets or pumps done!" Then he goes back to throwing water out of the boat. The others look at him scornfully. There he is using that bucket when they could build a better, lighter, or maybe bigger bucket or even and electric pump if he would just wait for them!

Well, our economy is taking on water and we are going to sink if we do not do something NOW to increase the supply of transportation fuel or reduce demand or both. IF we don't the price of gas will sink our boat by putting us into a depression. When that happens it will make implementing other technologies such as plug in hybrids or fuel cells take even longer to fully adopt.

I'm all for any source of ethanol that is practical. I have posted that distillers of ethanol should import sugar at 3 cents a pound from mexico to increase our production of ethanol. But even this would take some time to change over to. But if it works and doesn't compromise our ongoing production of ethanol then by god do it! Sweet Sorghum sounds very promising, especially iinteresting is it's ability to thrive in semi-arid conditions. Cellulosic ethanol is being developed and hopefully will become economically viable in a few years. But let's not jeopardize the one thing we got going for us, our current production of ethanol which is keeping the price of gas down. I'm all for looking for better, more productive, cheaper ways of making ethnanol. Let's just not let the boat sink while we are looking at or developing other options.

http://www.fsa.usda.gov/Internet/FSA_File/ethanol_fromsugar_july06.pdf

NOte that as of January 2008 the tariff on Mexican sugar is lifted. this could change everything re cost of sugar feedstock.

However, I'm having a hard time finding out the true cost of ethanol from corn once the parade of government subsidies has been excluded. BTW, that's a hell of a profit they're making between production and the gas tank - even the EU supply with all those crazy labor laws and universal health care still leaves room for a healthy profit at today's gas prices. Why does our ONLY option also have the highest profit margin?

Additionally, I'm confused about your parable - am I supposed to fall in with the "ethanol at any cost" crowd because it *may* take a while longer to develop alternatives? The roadblocks to any alternative energy choice are in Congress, the WH, as well as the businesses and lobbyists that benefit from high energy/raw material's costs in both fuel supply and production.

We have plenty of alternatives to ethanol from corn, just not enough money or influence behind them. It's time to change far more than the occupant of the WH. The corruption of Congress has risen to a level where they now only work for the corporations. The extreme greed has become unhealthy for everyone and isn't even any longer in the best interests of the corporations themselves. They would just as soon kill and eat the golden goose as look at it.

"I'm having a hard time finding out the true cost of ethanol from corn once the parade of government subsidies has been excluded."

I stated the total support from the government for ethanol is the total of the Federal petroleum excise tax credit ($.46 per gallon after 2008, $.51 up to 2008) plus the total of all crop subsidy payments for corn (about 6 cents a gallon) gives you $.51 cents (or $.57 through 2008) per gallon. You add that to the price of E85 which averages over the nation $3.10 (compared to gas at $3.75). If you add the $.57 to the $3.10 that gives you $3.67. this theoretically gives you what they would sell it at without the support from the government.

determining the COST is pretty hard because private companies do not like to give out this information. but there have been reports in the papers that the ethanol companies are getting squeezed by the high cost of corn and that their profit margins are getting pretty slim.


DON'T TWIST MY MEANING: My parable is obviously DOES NOT mean: "ethanol at any cost" - be advised I don't like it when someone purposely twists my message like that. THe obvious simple message delivered by my parable (I am happy to repeat it) is that THERE IS NO CURRENTLY AVAILABLE, FEASIBLE ALTERNATIVE FUEL THAT CAN MATCH THE REPLACE THE CORN BASED ETHANOL WE NOW HAVE.

YOu say there are "plenty of alternatives" Please don't keep them to yourself. I would sure like to hear of any that are feasible right now. I would support any alternative that is available RIGHT NOW that is better than corn. The fact is there are none available right now.

PLEASE, if you know of any alternative fuel that will work right now PLEASE FILL US IN ON IT. I don't think you can give me one, though.

Yes, sugar cane produces more sugar, but it only grows in Florida and Louisiana (maybe a lil in southeast Texas).

There are other alternatives are being looked into for the future (and are being developed - i wish these things could move faster but introducing a new crop takes some time). YOu have to convince thousands of farmers to try growing a new crop and that they won't lose money in the transission. Sweet Sorghum looks very interesting. Also, I have posted about a group who say they will build and have running a cellulosic plant (1 Mgy) by 2010. THAT is very interesting too. But these are not available right now. If they were, we'd be using them.


As I have already made clear the cost of ethanol is less than the cash benefit it gives us. The cost of gas is about 15% lower than it would be without ethanol. Ethanol is already saving us MORE THAN IT cost in Federal Petroleum Excise tax credits and (if you want to throw in the crop support payments - a program supported by an entirely different rationale) it still saves us more than it costs in Federal support.

Usually when you subsidize a new technology you expect to invest (that is lose money) for a number of years before you investment in the new technology begins to pay off. We are gaining a payoff from ethanol after only a few years of support. This buys us time (without a depression due to high oil prices) to develop the more advanced technologies i have spoken of many times before on this forum.

Ethanol subsidies cost 52 cents a gallon, and provide a benefit of making gasoline 60 cents a gallon cheaper. I say that's a bad deal, because making gasoline cheaper just makes people drive more and produce more CO2. Better off to kill the subsidy and have all those farmers produce something that is profitable on its own and be taxed.