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The Problem with Ethanol Is the Mandate

From Big Government:

After a decade of experimenting with mandates, tax credits and tariffs, a national consensus has been reached that ethanol is just not worth it. Late to arrive at this conclusion are farmers, their Congressional representatives, and presidential candidates eager to win over primary voters—a coalition that has made it nearly impossible to begin unwinding the various policies designed to prop-up ethanol.

The driving force behind U.S. ethanol consumption is the Renewable Fuel Standard (RFS), otherwise known as the ethanol mandate, which was established with the enactment of the Energy Policy Act of 2005.The RFS mandated that a minimum of 4 billion gallons of renewable fuels be used in 2006 and that Americans consume at least 7.5 billion gallons by 2012. Two years later, in the midst of the 2008 campaign cycle, Congress passed the Energy Independence and Security Act of 2007 greatly expanding the RFS mandate. Americans now must consume 36 billion gallons of “renewable fuels” annually by 2022—15 billion gallons of which will be corn ethanol.

This is bad for American consumers. Implicit in the ethanol mandate is the reality that without such a policy, Americans would not use nearly as much ethanol—and for good reason. During most of the past 30 years, ethanol has been more expensive than regular gasoline. Furthermore, ethanol contains one-third less energy than gasoline. This means that if you put one gallon of gasoline in your car and one gallon of ethanol in your friend’s identical model, you’ll go 15 percent farther than your friend. Responding to an increase in the RFS mandate, some automakers are even installing larger gas tanks in vehicles.

 

If ethanol is more expensive and less efficient, it is easy to see why the fuel necessitates a mandate but hard to understand Congress’s justification for doing so. Unable to stand on economic grounds, ethanol proponents make claims about reductions in foreign oil and greenhouse emissions. Upon closer scrutiny, these defenses of ethanol also fall apart. A seminal study by Princeton University’s Tim Searching and several co-authors found that corn based ethanol nearly doubles greenhouse emissions over 30 years. While burning corn ethanol may produce fewer carbon emissions, growing, harvesting, and refining corn ethanol is a carbon intensive process.

Supplementing the ethanol mandate is a tax credit and tariff on ethanol imports. Since the early 1980s, various tax credits have been available to ethanol refiners and import tariffs have been imposed on foreign ethanol (particularly Brazilian sugarcane). However, it was not until the RFS was enacted that ethanol became ubiquitous.

It is clear that ethanol has few merits to those not growing corn or using the issue to woo Iowa voters. As such, the tax credit, mandate, and tariff should all be eliminated. In order to eliminate the tax credit without giving Washington’s appropriators more money to spend, any ethanol tax credit repeal bill should be offset with an accompanying tax cut—the bill should be at least revenue neutral. Elimination of the tariff should be unconditional and done immediately.

Getting rid of the RFS mandate, the impetus behind ethanol consumption, is a much heavier lift. In pursuit of this goal, Senator Inhofe (R-Okla) and Representative Issa (R-Calif.) have introduced the Fuel Feedstock Freedom Act, legislation that would allow states to opt-out of the corn-based ethanol RFS program. The Fuel Feedstock Freedom Act allows for statehouses to pass legislation that withdraws the state from the corn ethanol portion of the RFS, assuming the governor ratifies this bill. Simple and clear, the Fuel Feedstock Freedom Act has the opportunity to garner broad, bipartisan support. For too long Republicans have hid behind opposition to the ethanol tax credit while quietly supporting the ethanol mandate. The Fuel Feedstock Freedom Act—or more plainly, opposition to the RFS—should be the litmus test for real conservatives. It’s time for conservatives to make ethanol a thing of the past, just like they did Democrats’ huge majorities in 2010.

Government Shouldn’t Decide What Cars Run On

From The Heritage Foundation:

With gas prices hovering at $4 per gallon, politicians are trying to sell quick fixes that will inevitably end up hurting consumers. The latest attempt is an open fuel standard that would require a certain percentage of new vehicles to be flex-fuel (a combination of gasoline and ethanol or methanol), electric, natural gas, biofuels, or any other power source that is an alternative to your traditional internal combustion engine.

Policymakers will attempt to convince the public that open fuel standards encourage competition and will benefit consumers. Consumers won’t be paying such high prices at the pump and Americans will be buying less foreign oil. Moreover, the additional cost for each vehicle will be marginal. As opposed to promoting one technology (such as electric vehicles or natural gas vehicles), an open fuel standard does not pick winners or losers.

It all sounds great. So why do we need a mandate for vehicle producers to make 50 percent of their fleet to run on these technologies? The reason there are not more cars running on batteries, natural gas, methane, or other alternative fuels is the result of competition, not the absence of it.

This isn’t the first attempt to mandate alternative vehicle fuel use. Policymakers in the past have proposed to have vehicle manufacturers make a certain percentage of their fleet flex-fuel. What the Competitive Enterprise Institute’s Marlo Lewis writes about that idea applies to a broader alternative vehicle mandate as well:

What flex-fuel mandatists lament as a lack of competition is simply a competitive outcome they dislike. Mandatists do not want competition. They want a rigged marketplace in which they, rather than competition, dictate the outcomes.

There are plenty of technologies already developed to promote competition, and the one that emerges to provide a consistently affordable alternative to gasoline won’t need the help of the government, because the profits will be enough incentive to drive production and lower costs, which will be enough incentive for the consumer to switch from a car that runs on gasoline to something that is cheaper. It may not happen as fast as politicians and lobbyists representing the beneficiaries of open fuel standards would like, but then again, it might. Good economic ideas can expand at rapid rates. Getting the government involved only impedes the process.

Having an open fuel standard also means one of two things for domestic vehicle manufacturers. They’re going to be producing a lot of cars no one wants to buy or they’re going to receive more taxpayer dollars for the production and consumption of these vehicles. The government already manipulates the automobile market with fuel efficiency standards. Do we really need more government intervention?

Mitt Romney Still Loves His Ethanol, Especially in Iowa

From RedState:

Say anything you want about Mitt Romney, but at least he isn’t flip flopping this time around.  Instead of disavowing his support for Romneycare, he fully embraced the monstrosity, albeit on a state level.  Now, amidst the growing disquiet over the outrageous ethanol subsidies, and following Tim Pawlenty’s mea culpa on the issue, Mitt Romney is doubling down on his support for this odious subsidy.  Jonathan Weisman of the Wall Street Journal reports:

It was an odd setting for a policy pronouncement, but on the sidewalk outside the Historical Building here, former Massachusetts Gov. Mitt Romney embraced ethanol subsidies. It came just days after and blocks from where his rival for the Republican presidential nomination, Tim Pawlenty, said the subsidies should be phased out.

“I support the subsidy of ethanol,” he told an Iowa voter. “I believe ethanol is an important part of our energy solution for this country.” Iowa leads the nation in the production of corn, a main source of  ethanol.

Iowa is certainly the leader in fleecing the rest of the nation with their corn welfare.  Romney definitely gets points for honesty and for his cognizance of the political climate in Iowa.  However, he would be better suited to take his corn show on the road and embark on challenging Barack Obama for the Democrat nomination.  That way, his political calculations would coincide with the policies that he is seeking to represent.

 

Ethanol subsidies are an anathema to every principle that conservatives embrace. These bailouts for the rich are price-hiking market-distorting government interventions that benefit few at the expense of everyone else.  At a time when we are trying to offer the public an intellectual and moral distinction between the pro-jobs pro-consumer nature of the free market versus the regressive and insidious policies of bailouts and corporate cronyism, Mitt Romney is muddling the battlefield with pale pastels.  At a time when some of those very subsidies are fueling high energy and food prices and are impelling trickle-down unemployment, Romney wants to preclude one of our most effective lines of attack against Obama.

The ethanol industry is unique in that it is insulated from the free market by government imposed subsidies, mandates, and tariffs.  The mandates are killing our cars and the tariffs are blocking the use of more efficient sugar-based ethanol from Brazil.  Mitt Romney might want to divulge to the public if he is in favor of the mandates and tariffs as well.  After all, the same demographic in Iowa that would support the subsidies, would support the other two sacred stools of ethanol.

It would be interesting to hear how the Republican “frontrunner” squares his conservatism with a policy that is an utter imprecation to everything conservatives have fought for.  And last time I checked, the ethanol policies were promulgated primarily from the federal government.

You can’t use the federalism argument to ameliorate every liberal policy, can you?

Bipartisan Bill Seeks To End Cornerstone Ethanol Subsidy

From The Truth About Cars:

Yesterday evening I directed some ire at President Obama’s continued reliance on ethanol as a major plank of his do-nothing transportation/energy agenda, noting

That extra money for 10,000 E15-capable pumps? That’s because no gas station owner will pay to install a pump for a kind of fuel that only cars built since 2001 can use… and which the auto industry has tried to ban. And why E15 in the first place? Because blenders can’t sell enough E10 to blend the government-mandated amount of ethanol and collect their $6b this year in “blender’s credits” to do so. A subsidy to support a subsidy which in turn props up yet another subsidy (I may have missed a subsidy in there somewhere). You can’t make this stuff up.

The “cornerstone” subsidy that all other ethanol subsidies support is the Volumetric Ethanol Excise Tax Credit, or VEETC, or “blender’s credit,” a $6b per year subsidy that directs 45 cents to refiners for every gallon of ethanol they blend with gasoline. The VEETC nearly died in December’s lame duck session, only to be revived as a way to buy votes for the President’s tax policy. Now, however, The State Column reports that a bipartisan Senate bill has been introduced that would eliminate both the VEETC and import tariffs on foreign-made ethanol. And with a rash of bad news coming out about ethanol, this could just be the opportunity to kill this wasteful government subsidy with fire.

Read the rest at The Truth About Cars.

Meet the New Ethanol: Wind Blows Past Corn as Subsidy King, No End in Sight

From Big Government:

So Al Gore has come around on the policy cancer that is ethanol, even as Newt Gingrich decides that telling the truth on this would be politically inconvenient. Yet the great strategist Mr. Gingrich does not see that support for ethanol leaves him completely unable to speak the truth about the booming wind and solar debacles threatening to expand this economic black hole even wider.


That is, unless he wants to look like a certain other candidate defending his own state version of ObamaCare while decrying Obamacare. Not pretty, not conducive to attracting voters.

As Congress considers the booming debt and which programs to nibble at for meager reductions, possibly they should heed Gore’s complaint: “It is not good to have these massive subsidies.”

True. And Gore even specifically noted ‘for first generation’ ideas like corn squeezins. But big ol’ subsidies make even less sense for fully mature technologies, like wind, whose electricity was commercialized 120 years ago (despite the mysticism, romanticism and silly talk of ‘new technology’ shrouding windmills, they’re creaky technology for which any improvements will be at the margins of efficiency. It’s a windmill.)

And now guess what? Windmills have surpassed ethanol’s pocket-pickery.

Read the rest at Big Government.

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