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Evaluating Ethanol: Do subsidies and mandated production work?

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Found this article that my mom had saved for me back in January. It features a pro opinion, given by the executive director of Michigan Corn, Jim Zook; it also features a con article from Bruce Edward Walker, an editor at large for the Mackinac Center for Public Policy.

 

Since I'm obviously pro-ethanol myself, I'll put this section first:

Ethanol use continues to make sense

If you, as a Michigan driver, became aware of some magic beans that would help you save nearly $1,000 a year on gasoline, wouldn't you want to learn more about them?

If you, as a supporter of cleaner emissions and untainted ground water, knew these magic beans were a renewable, eco-friendly resource, wouldn't you embrace their use?

If you, as a business-owner, knew these magic beans help support 400,000 jobs across the country, and could create another 125,000 jobs -- wouldn't you support it?

This is no fairy tale. The above facts, backed by research, science, and common sense, show these magic beans have been available for decades. They come in the form of a grain -- corn -- the main ingredient for producing the renewable fuel ethanol. Many drivers don't know that when they fill up their cars they are not getting straight gasoline but rather an ethanol blend, typically E10 (10 percent ethanol). And it's helping drivers save money.

Each year, the United States spends more than $300 billion for foreign oil, the equivalent of more than $1,000 for every citizen.

Ethanol has proven to be a great economic tourniquet to lessen the costly flow of oil that has placed a financial burden on US drivers. Because ethanol is available at a lower cost than gasoline, retailers can charge less.

And, because ethanol now represents 10 percent of our nation's fuel supply, US oil imports have fallen below 50 percent for the first time since 1997, displacing the need for 485 million barrels of oil (a value of $49.7 billion in 2011).

A 2011 study by economists at Iowa State University and the University of Wisconsin found that ethanol reduced US wholesale gasoline prices by an average of 25 cents per gallon from 2000 to 2010. In 2011, the authors found that ethanol reduced prices by $1.09 per gallon, which equates to $1,200 annual savings for a typical US household.

And, more fuel choices are ahead after the EPA approved the use of E15 (15 percent ethanol) for cars 2001 and newer, making it available for use in more than 75 percent of cars on the road today. In a study performed by the US Department of Energy and the EPA, 86 vehicles representing all makes and models were driven more than 6 million miles on E15 -- with ZERO issues. Drivers now have another lower-cost oxygenate available that helps their engines run cleaner and with more power. In fact, NASCAR is entering its third year of using strictly E15 in all three of its racing series -- and has driven more than 2 million miles with no problems. Ethanol opponents have been spreading misinformation about how E15 destroys engines and voids warranties -- without providing relevant, unbiased date to support the claims. Common sense dictates that if NASCAR (featuring the best mechanics and drivers in the world and millions of dollars in equipment) is utilizing E15 under the toughest possible engine conditions, then it is certainly safe for your car. However, if you are concerned about warranty issues, simply check with your dealer.

Opponents also argue that using more corn to fuel our vehicles takes away from the nation's food supply and pushes food prices up. This, of course, is another myth, since the corn we are talking about is field corn -- which is used to feed animals and provides less than 3 percent of food ingredients for humans -- and not sweet corn.

According to the USDA, if the farm price of (field) corn increases 50 percent, then retail food prices as measured by the consumer price index increase by 0.5 percent to 1 percent. Even at $8 corn, your box of corn flakes contains about 12 cents of corn, while a pound of hamburger only contains 37 cents.

So when discussions about expanding the use of ethanol come up, the question should not be "Why should I use it"? The question should be "Why not"?

If you have questions or comments, please email us at corninfo@micorn.org.

 

Mandates too costly to maintain

Heralded as a tonic for our reliance on foreign oil, environmental degradation, and climate change, ethanol benefits only those groups that sells the raw material comprising it and the politicians who receive their donations while wreaking immeasurable harm on the world's most economically vulnerable and providing little to no environmental advantages. Most popular analyses conveniently disregard the carbon footprint inherent with growing corn. Tractors used to plow, disk and fertilize; combines used to harvest; and trucks used to transport corn to granaries, ethanol and gas refineries and, finally, gasoline stations all require copious amounts of fossil fuels. Michigan farmers know well that pressure to increase their crop yields depletes the soil of important nutrients, resulting in increased fertilizer use. That, in turn, impacts Michigan's water ways as the likelihood of runoff creates severe algae blooms that cause stream and river eutrophication.

Congress wisely ended the $6 billion per year Volumetric Ethanol Excise Tax Credit after forcing taxpayers to foot an estimated $45 billion in ethanol subsidies since 1980, and further allowed the ethanol import tariff to expire at the end of 2011. The federal subsidies amounted to 45 cents per gallon for ethanol blenders, and shielded the American ethanol industry from competition with a tariff of 54 cents per gallon on foreign imports.

Unfortunately, although the subsidies are gone, the federal mandates remain. The 2007 Renewable Fuels Standard, signed into law by President George W Bush, still requires that all US fuel contain a blend of 10 percent ethanol, resulting in 44 percent of all corn grown in the United States being, pardon the pun, earmarked for ethanol production. This represents an estimated 15 percent of all corn grown in the world. Astute readers may recall a drought in the Midwest last summer, that caused corn yields to drop by as much as 25 percent in some states. The drought had the unfortunate effect of contributing to a 400 percent spike in corn prices, according to a Detroit News Report last November. The outlook for 2013's season is equally bleak, prompting eight governors and 200 members of congress to appeal for an RFS waiver from the Environmental Protection Agency. But the EPA dug in its heels, asserting a waiver "will have little, if any, impact".

One doesn't have to be an economist to recognize that substantially lower yields and a fixed demand will drive up costs for other corn customers, including the beef, pork, and poultry industries that rely on corn for feedstock. The National Council of Chain Restaurants claims the RFS costs each member approximately $18,000 a year. One additionally doesn't need to be an economist to recognize who will shoulder these additional costs. A May 2012 study by Timothy A Wise of Tufts University concludes that US ethanol mandates have prompted Mexican consumers to pay an additional $1.5 billion to $3 billion for food between 2006 and 2011. If 15 percent of the world's corn is mandated for ethanol use, imagine the negative repercussions on worldwide food pricing.

Congress has done away with the costly ethanol subsidies. Now it's time to get rid of the even costlier ethanol fuel mandates. If ethanol derived from corn is indeed the answer to our energy needs, it should make its case on the merits of the free market rather than government and industry strong-arming.

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Should remind Walker about when the USA was sending really cheap subsidized corn to Mexico and the farmers down there couldn't compete so didn't bother to raise as much as now when it is worth something. He shows his ignorance when he doesn't mention the third of the corn that is processed and goes back out as high quality distillers grain and corn oil.

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I should note that the Mackinac Center for Public Policy is heavily conservative, and has been known to speak out on this issue. My favorite argument from opponents like him is how they point out the fossil fuels required in the production and transportation of ethanol. I have a lot of fun pointing out that petroleum uses petroleum too, in the mining process, transportation process, and the refining process. And let's not forget environmental hazard as well. Ethanol, when spilled, does not leave the lasting environmental impacts that oil does... especially when we're talking about tar sands crude.

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