The end of ethanol subsidies

While the elimination of the ethanol tax credit (and tariff on imported ethanol) are a step in the right direction, I temper my excitement. The mandate to blend renewable fuels with transportation fuels remains, however, - http://www.epa.gov/otaq/fuels/renewablefuels/index.htm - so there's still an ethanol subsidy in place. It's just hidden and tough to calculate.

Similarly, I have to disagree strongly with this statement - "the burgeoning wind and solar industries are increasingly able to produce clean energy without requiring such whopping subsidies." Both wind and solar projects receive federal tax credits. Additionally, both benefit from a variety of state mandates for utilities to meet percentage thresholds from renewable sources. The costs aren't readily visible because they are a component of electricity rates, but they are heavily subsidized, solar in particular.

Corn ethanol, as was pointed out, often, at the time and since, by a large number of environmental organizations and other groups, is at best useless in terms of carbon emissions and pollution and what-have-you. It was a straight bribe for Iowa and other agricultural states on the idea that a politician never lost an election by giving other people's money away.

But one of the big problems we have is the batshit budgeting process for stuff like this, and the fact that a lot of people have invested a lot of money in infrastructure to produce and deliver ethanol and related engine technologies. And down the road, ethanol produced by other technologies will very probably become economically viable.

So by all means phase out the corn ethanol subsidies, but if we just chop them off, it is going to leave a lot of investors high and dry, and make it that much harder to finance other more worthwhile technologies.

This is mostly being driven not by a sudden awareness that corn ethanol is a loser, but by the Tea Party types who, although it has been crystal clear for 35 years, for instance, that SS was going to shift into the red when the baby boomers started retiring, and that Medicare was also going to be a budget buster (and this has only gotten worse over that time), have suddenly woke up and noticed this. Why anybody with any brains would trust these clowns to run a country is a mystery to me, but it doesn't argue well for their competence.

The sky is not falling. We need to use our heads as opposed to all these chicken littles running around squeaking that it is.

Corn ethanol, unlike sugar ethanol from Brazil, makes absolutely zero economic and environmental sense. The fact that Mitt, Newt and Obama all want to retain the subsidies speaks badly of all of them.

@ k.a.gardner: "I can't wait until a BRAVE DiA blogger posts about Obama's politically risky "Keystone conundrum.""

I know! I can totally feel them *trembling in fear* through my keyboard at even the *thought* of the wrath they would receive from the Left for daring to take Obama on for whatever that "Keystone conundrum" thing is you just mentioned!

If you actually have a position, understand it well enough to explain it, and go to the trouble of persuading voters, you may be very pleasantly surprized at the result.

I can't wait until a BRAVE DiA blogger posts about Obama's politically risky "Keystone conundrum." Which special interest is more important in an election year? Organized Labor or Environmentalists?

I'm guessing the unions - they have more money to donate to campaign coffers.

From the New York Times link:

Ethanol proponents eventually accepted expiration of the tax credit without putting up a big fight.

“We may be the only industry in U.S. history that voluntarily let a subsidy expire,” said Matthew A. Hartwig, a spokesman for the Renewable Fuels Association, a trade group for ethanol producers.

“The marketplace has evolved. The tax incentive is less necessary now than it was just two years ago. Ethanol is 10 percent of the nation’s gasoline supply.”

Quite honestly, I'm not sure why this topic deserved two posts. If the RFA wasn't expecting a tax break extension why would congress bother to push it? (I see Cherny has already commented about American ethanol exports, so I don't need to add this paragraph).

And I'm not sure how "burgeoning" the solar industry is, unless we're referring to American distributors and installers of Chinese-subsidized solar panels. Domestic manufacturers are already screaming for tariffs.

There are other issues, such as Obama's "green initiative", which are doctrinally unsound. I'm sure I don't need to remind anyone about the Solyndra scandal.

The Tea Party should change its name into TEQUILA Party in order to get more followers and members.

Just a small step on the way to getting rid of all the wasteful use of taxpayers' money based on the unproven IPCC theory "anthropogenic CO2 causes global warming". The theory is not proven; what has been proven several times over is that most of the lead IPCC researchers are fraudsters. That is why they do not disclose their research data, do not debate climate scientists who are skeptical of the theory. That is why they do not attend any of the six annual conferences of climate scientists held by the Heartland Institute. Hopefully taxpayers will deal thoroughly with the fraudsters who have made millions from this fraud as well as those media, political and others who supported the fraudsters.

Just a small step on the way to getting rid of all the wasteful use of taxpayers' money based on the unproven IPCC theory "anthropogenic CO2 causes global warming". The theory is not proven; what has been proven several times over is that most of the lead IPCC researchers are fraudsters. That is why they do not disclose their research data, do not debate climate scientists who are skeptical of the theory. That is why they do not attend any of the six annual conferences of climate scientists held by the Heartland Institute. Hopefully taxpayers will deal thoroughly with the fraudsters who have made millions from this fraud as well as those media, political and others who supported the fraudsters.

Restrained Radical writes: "What I find kind of amazing about the end of the subsidies is that there is no anti-ethanol lobby or even an excited base. Mild grassroots opposition was enough." Perhaps there wasn't an anti-ethanol lobby, but there was certainly a strong anti-ethanol SUPPORT POLICY coalition, led (contrary to the myth maintained by some right-wng bloggers, who like to characterize it as a "green" policy) by environmental activists. One of the earliest studies critical of the subsidies was produced by the International Institute for Sustainable Development -- in 2006.

http://www.globalsubsidies.org/en/research/biofuel-subsidies-united-states

And it was environmental scientists who first started to question the purported greenhouse-gas benefits of biofuels. The Tea Party may have named and shamed the politicians supporting the subsidy, but the evidence had already been set out for them.

Tzimisces writes, "until I see restrictions on the sugar industry and tariffs on Brazilian ethanol disappear ... ." The $0.54/gallon secondary import duty on fuel-ethanol DID disappear, contemporaneus with the expiration of the excise tax credit.

It is, arguably, surprising that Congress would do something so reasonable, or allow something sensible to happen.

Even a blind squirrel finds acorns.

If Congress were to allow ALL of the Bush tax cuts to expire then you would be on to something.

Remember, they were passed in the era of "deficits don't matter".

Regards

Very good and reasonable post, but I'm still skeptical that a vote to end subsidies would have happened. My main thesis remains that this congress will do the right thing exactly as often as not acting is the right thing to do, as in this case.

Excerpt John Paulus:
The Senate voted overwhelmingly in 2011 to eliminate billions of dollars in support for the U.S. ethanol industry, sending a strong message that the era of big taxpayer support for biofuels is ending.
The 73-27 vote may ultimately be symbolic since the White House has vowed not to repeal ethanol subsidies fully and the bill the repeal language is attached to is not expected to make it into law. “Ending this wasteful handout would ensure taxpayers no longer subsidize the already profitable corn ethanol industry,” Democratic Senator Frank Lautenberg said.
The Senate measure still faces a long road to becoming final. The White House issued a statement saying it was against a full repeal of ethanol subsidies, indicating it could use its veto power if the amendment continued to advance in Congress.

Looks like the Obama administration is once again behind the curve, playing politics as usual while the country's finances are going up in flames. Our self-proclaimed fourth best President ever has evidently learned nothing from the predicament of countries such as Greece, Ireland, Portugal, Spain, Italy, Japan, and now France. In Obamaworld, the answer to a hole in the bottom of a boat is apparently to drill another hole to let the incoming water out.

I'd say the biggest single piece of this is high agricultural prices based on world food demand. Subsidies tend to be strongest with declining industries or industries where there are large rents (a lot of resource extraction industries like oil suit this characterization, as do certain agricultural products like sugar or cotton where good land is limited). In these scenarios, there are huge incentives towards cooperation among otherwise disparate actors, if conditions improve these incentives collapsed. The various players here mostly had incentives towards cooperation when agricultural prices were low, with prices high their incentives are to compete rather than to cooperate so they can't maintain a unified front.

I doubt this would have been happening if the farm sector was doing remarkably worse than the rest of the economy, since they are doing remarkably better there is an opening to end these policies that might have otherwise been years, if not decades, away. Until I see restrictions on the sugar industry and tariffs on Brazilian ethanol disappear I'm going to be sceptical that what we're seeing is an outbreak of good sense in Congress on this issue rather than a simple collapse of interest group cohesion.

Huntsman cited his opposition to the subsidies as his reason for skipping Iowa. What I find kind of amazing about the end of the subsidies is that there is no anti-ethanol lobby or even an excited base. Mild grassroots opposition was enough. This is good news for those who want to end the War on Drugs, another high-profile issue with special interests and politicians on one side and a mildly interested voters on the other.

I didn't even know this was about to happen. Hopefully other subsidies will die soon too.