When one works on Wall Street, one is given many free things. Among my basket of goodies was a free subscription to the Investor’s Business Daily, a publication filled with very insightful business and economic news but whose editorial board is so arch-conservative that it makes the Wall Street Journal editorial board look liberal by comparison. I was so offended of their editorial content that I called the company and asked them to stop sending me their paper.
“But it’s free.”
“Yes, I realize that but I can’t stomach the editorials,” I replied. “Please suspend sending me the paper.”
So it is with a degree of shock that today I find my agreeing wholeheartedly with one of their editorials.
The bailout-seeking domestic auto industry has been criticized as being unproductive and inefficient. It hasn’t been helped by mandated fuel economy standards that have done little to reduce our dependence on foreign energy or help the environment. Now the fuel we have been mandated to put in our cars, equally unproductive and inefficient, is also seeking a bailout.
Ethanol never made much sense economically or environmentally. It never would have made it to market without congressional mandates and huge subsidies. Having the first presidential contest in the corm state of Iowa didn’t hurt either. With oil prices plummeting, it is even less competitive — if it ever was.
The product has benefited from a tax credit paid to gasoline producers to blend gasoline with ethanol; a federal fuel economy standard that sets a minimum amount of ethanol to be blended; and a 54-cents-a-gallon tariff on cheaper imported ethanol made in places like Brazil. Brazilian ethanol is made from sugar, not corn. But corn is grown in Iowa, and Brazilians can’t vote.
Recent legislation mandated increased ethanol use as well as a 51-cent-a-gallon tax credit and more corn subsidies. Over the last two decades the ethanol industry has been kept alive with more than $25 billion in federal handouts. Yet it still can’t compete.
Five of Iowa’s 32 ethanol plants are in bankruptcy. They are operated by Sioux Falls, S.D.-based ethanol giant VeraSun Energy, which itself filed for Chapter 11 on Oct. 31. Eleven plants in other states have also fallen into bankruptcy. Nationally the ethanol plant failure rate is at 8.8% and could reach 22% in short order.
The Renewable Fuels Association, the industry’s lobbying arm, has talked with Team Obama about further handouts such as $1 billion in short-term credit to keep failing plants in operation and $50 billion in loan guarantees to build more. The association wants to increase the 10% ethanol limit in gasoline for conventional cars and trucks and require that any carmaker getting federal funds produce only vehicles that can run on any blend up to 85% ethanol.
Even the environmentalists are getting wise to this game. The Environmental Working Group and five other groups came out against such a bailout last week, saying subsidies “for corn-based ethanol have produced unintended, yet potentially catastrophic, environmental consequences, with little or no return to taxpayers in energy security (or) protection from global warming.”
According to a report from the Hoover Institute’s Henry Miller and professor Colin Carter of the University of California, Davis, “ethanol yields about 30% less energy per gallon of gasoline, so miles per gallon in internal combustion engines drop significantly.” So the per-mile cost is actually higher at the pump. Meanwhile, it raises the food prices at the supermarket you drive to.
Corn ethanol is less energy efficient and costs more. It generates less than two units of energy for every unit of energy used to produce it. It takes 1,700 gallons of water to produce one gallon of ethanol. Each acre of corn requires 130 pounds of nitrogen and 55 pounds of phosphorous.
Increased acreage means increased agricultural runoff, which is creating aquatic “dead zones” in our rivers, bays and coastal areas.
Industries such as poultry and livestock, as well as their customers and workers, suffered when government policies and subsidies drove corn prices to record highs last summer. Demand for corn and the diversion from other crops have sent food prices soaring worldwide.
If we are seriously talking about an economic recovery, we need to remove this albatross from around the neck of businesses, consumers and taxpayers.
My views on corn ethanol are identical. I’ll have to get past the shock of actually agreeing with conservatives on something.