Posted by: bmeverett | January 9, 2011

Ethanol: a Test for Republicans


In the 2010 election, Republicans made huge gains in both the House and the Senate, offering the country a slate of Tea-Party backed conservatives devoted to the principle of limited government. No more ignoring constitutional limits. No more ear-marks. No more hand-outs from taxpayers to powerful constituents. No more Nanny State. No more borrowing from China. Sounds great, but how can we be sure that these aren’t the same Republicans tossed out on their big elephant ears in 2006 and 2008? Here’s a litmus test: ethanol.

Ethanol was for many years the darling of environmentalists and the renewable fuels crowd. A natural fuel, powered by the Sun and grown here at home, would solve all our problems. After a decade of living with this miracle fuel, people are finally waking up to the truth.

First, ethanol is really expensive. In 2010, US consumers were forced to buy about 12 billion gallons of ethanol – about 5% of our total oil consumption. The government provides a direct subsidy of $5 billion to the ethanol industry, equivalent to about $0.62 per gallon of gasoline. In addition, gasoline suppliers are required by law to include ethanol in their gasoline blends, no matter what it costs. The current price of ethanol is $0.30 per gallon above the price of gasoline, costing consumers an additional $3-4 billion each year. Drivers must therefore pay nearly $1 per gallon more for ethanol than for gasoline.

The biggest burden, however, is hidden. The US currently produces about 40% of the world’s corn, and 40% of the US corn crop is used to produce ethanol. Thus, about one-sixth of the total world corn crop is diverted to produce 5% of US oil supply. The price of corn was relatively flat for many years, fluctuating between $1.85 and $2.50 per bushel between 1979 and 2005. After the ethanol mandate kicked in, corn prices started to rise, hitting a peak of $6 per bushel last fall. Ethanol thus increases food prices as well as fuel prices. Most corn is used for animal feed, so higher corn prices pass right through into the meat market. In developing countries, like Mexico, where corn is a staple for the poor, the spike in corn prices has been disastrous.

Second, ethanol hurts rather than helps the environment. In theory, the carbon emitted by burning ethanol is reabsorbed when the corn grows back, creating a closed cycle. In reality, it takes a lot of energy to make ethanol, including plowing fields, planting and harvesting the corn, applying pesticides and herbicides, transporting corn to ethanol plants and burning fuel to process corn starch into alcohol. Many of the “environmentally friendly” ethanol plants in the mid-west burn coal to distill the ethanol, adding not only carbon, but traditional air pollutants as well. Because of the artificial demand for ethanol, farmers have brought back into production marginal land previously thought unsuitable for crops. If this land had been left fallow it would re-grow its natural cover, thereby absorbing carbon from the atmosphere.

Finally, ethanol performs poorly. Its heat content per gallon is only two-thirds that of gasoline. Many gasoline blends contain 10% ethanol, reducing the driver’s range by about 3½%. E-85, a blend of 85% ethanol and 15% gasoline, would reduce driving range by about 30%. Ethanol has caused corrosion and other annoying problems with marine engines.

Given the complete failure of this program from an economic, environmental and national security standpoint, why would you continue to force this fuel on the public? The answer is simple: corn farmers like higher corn prices and big agribusiness, like Archer Daniels Midland, make a lot of money from the ethanol business. The losers in this process are everyone else. In essence, ethanol is a microcosm of our current political problem. Politicians of both parties extract as much tax money from the public as they can, then spread the money around to buy votes. The only principle at work here is political calculation.

This is a fool’s game. Senators and Congressmen promise to go to Washington and bring federal funds home to their districts. The federal government, however, has no money other than what it extracts from taxpayers. Poor states, like Mississippi or Louisiana may be able to get more money back from the feds than they pay in, but most states won’t. The game itself is damaging to the country, since the money siphoned from the public by our elected officials is largely wasted, reducing not only private consumption, but the investment critically needed to make the economy grow.

Ethanol is a poster boy for government abuse and overreach – rewarding favored constituents at everyone else’s expense. Any good conservative would ask not only why the federal government should force ethanol onto the market but also what constitutional power authorizes the federal government to do so. Conservative senators and congressmen in the East, West and South have no problem here. All their constituents lose from the ethanol program. It’s a bit tougher for conservative elected officials from corn-growing states, who must choose between their principles and the interests of powerful constituents. Are the Republicans now ready to change the game? Ethanol is a good indicator.

Let’s start with Senator Richard Lugar, Republican of Indiana. Senator Lugar claims to be a free-marketer. Alas, Indiana is the fifth largest corn producing state, so the good Senator states that “Ethanol is a premier, high performance fuel. It has tremendous environmental benefits and is a key component to energy independence for our country.” Two sentences making four claims, all wrong. Senator Lugar also supports government requirements for fuel efficiency, renewable energy standards and massive government energy subsidies. He believes that consumers should be legally required to pay the extra cost of “flex-fuel” vehicles and oil companies should be forced to install E85 pumps, thereby raising consumer costs even further.

How about South Dakota Republican John Thune, the conservative who ousted Tom Daschle in 2004? Senator Thune regards himself as a leading conservative and hints at a Presidential run in 2012. Senator Thune not only supports the current ethanol mandate, but wants it expanded to require consumers to buy E-85 blends. He also supports renewable energy standards, government regulations on automobile fuel efficiency and huge subsidies for wind power. Why does he support these distinctly unconservative ideas? Because they are, he believes, good for “the people of South Dakota.” Check out Senator Thune’s website discussion of energy issues at http://thune.senate.gov/public/index.cfm?FuseAction=Issues.Detail&Issue_id=32a6d144-6ad7-4d50-bfdd-242f53f288c1. There is virtually no difference between his statement and that of Tim Johnson, the Democratic Senator from South Dakota at http://johnson.senate.gov/public/index.cfm?p=Energy.

How about newly elected Illinois Senator Mark Kirk, who brought joy to Republican hearts when he took President Obama’s old Senate seat? According to his website, “Mark is a strong supporter of ethanol and biodiesel to expand economic opportunities for Illinois farmers – especially our corn and soybean producers.” He means expand opportunities for Illinois farmers at everyone else’s expense.

Chuck Grassley, Republican Senator from Iowa? A strong advocate of limited government, but demanded that continued ethanol subsidies be included in the bill preserving the Bush tax cuts. Senator Grassley is also a free-trader, but supports the $0.54 per gallon tariff on Brazilian ethanol imports which might compete with his constituents.

Jerry Moran, newly elected Republican Senator from Kansas says, “I supported H.R. 6, the Energy Policy Act. … This energy bill contains a Renewable Fuels Standard that will double America’s demand for ethanol to at least 7.5 billion gallons annually by 2012. A Renewable Fuels Standard would require that a certain percentage of motor fuel in the U.S. must be obtained from renewable sources, such as ethanol or bio-diesel. Increasing the use of renewable fuel is not only good for our farm economy, but for our entire state.” Not good for the country, but good for his constituents?

Senator Pat Roberts, the other Republican Senator from Kansas, received the President’s Award from the National Corn Growers Association. Care to guess why?

I could also list the Republican House members from corn growing states, but I’m sure you already see the picture. A Republican House majority and a more balanced Senate are a good start at solving our current political nightmare, but Republicans have to really mean what they say about limiting government and reducing the regulatory and budgetary burden on the economy. That will mean saying no to powerful people. Watch what they do, not what they say, and keep your eye on ethanol. So far, the situation is pretty depressing. Maybe a glass of ethanol would help.

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Responses

  1. We cannot afford the luxury of subsidizing inefficient solutions to real problems. Ethanol from scrub growth, or sugar cane is more efficient then pushing the corn only ethanol solution. Our friends to the south in Mexico have suffered actually because of the increased price of corn.
    Using scrub growth for ethanol is using a useless product for value. Diverting corn for ethanol is stealing from the food production the world needs. Let’s be serious on helping not only ourselves but the needs of our citizens of the world.

    • I certainly agree that there are more efficient ways of producing ethanol than from corn. I’m not so sure, however, that growing biomass like switchgrass on poor quality land is economically viable. The best bet is probably algae-based biodiesel, but we shall see.


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