Showdown for ethanol

April 19, 2010
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Ethanol has grown to play a big part in Indiana energy production. The state had only one plant just a few years ago; now there are a dozen and one under construction. Those plants consume the equivalent of one-third of the state’s corn production.

Whether those plants continue humming is an open question. Ethanol has needed subsidies to survive, and those subsidies are up for renewal at the end of the year.

To that end, the ethanol industry has ramped up lobbying through a new trade group, Growth Energy.

Growth Energy is pushing back against another new trade group, the Grocery Manufacturers Association, that’s composed of food companies, environmental groups, livestock producers and oil companies—all of them hit in the pocketbook in one way or another by ethanol.

Growth Energy is worried that public sentiment is swinging against ethanol. Why, the public is beginning to ask, can’t the industry survive on its own after decades of government support?

Ethanol producers counter that their product is relatively clean, doesn’t rely on imports and doesn’t fuel hostile regimes.

Ironically, domestic ethanol producers also are under fire from Brazilian ethanol concerns that want Congress to lower trade barriers.

All of this comes as the domestic industry asks the Environmental Protection Agency to increase the ethanol blend in gasoline to 15 percent from the current 10 percent. The agency is taking additional time to see how more ethanol would affect engines and anticipates making a decision this year.

Expect to see the public relations war continue over television ads and other forums.

How do you feel about ethanol? Should the subsidies be continued?
 

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  • No, the subsidies should not be continued
    As many independent observers have shown, the subsidies are redundant given that the industry's product benefits from regulations that mandate a growing volume of use each year.

    And the tariff -- at an ad valorem equivalent of around 30% is one of the highest applied to any product imported to the United States -- raises prices for consumers and reduces opportunities to substitute ethanol from relatively friendly Brazil for petroleum products imported from relatively unfriendly Middle Eastern countries.

    Let the subsidies and tariffs expire at the end of this year, as they were already scheduled to.

    By the way, Norm Heikens writes, "Growth Energy is pushing back against another new trade group, the Grocery Manufacturers Association, thatâ??s composed of food companies, environmental groups, livestock producers and oil companiesâ??all of them hit in the pocketbook in one way or another by ethanol."

    I have looked at the web site of the Grocery Manufacturers Association (www.gmaonline.org/membership/index.cfm), and I do not see any mention of environmental groups or oil companies.

    Are oil companies "hit in the pocketbook in one way or another by ethanol." Analyses by various experts suggest that over the last couple of years, oil companies have pocketed most of the blenders tax credit.
  • Ethanol Important to Indiana
    Several things are not mentioned in Norms article that readers might be interested to know. According to a study done for the Renewable Fuels Association by noted economist John Urbanchuk in 2009:
    1) Capital spending on ethanol added 53.3B to the nations GDP. This is money that would have left the county for oil.
    2)The ethanol industry supported nearly 400,000 jobs both direct and indirect.
    3)Rural economies benefited the most from ethanol jobs and capital spending.
    4)The industry generates 8.4B in Federal Revenue and 7.5B for state and local governments for a tax surplus of 3.4B after the subsidy is subtracted. Not a bad return on investment!
    5)Without the tax credit and tariff it is very possible that oil companies would import ethanol from Brazil which already heavily subsidizes it ethanol. Why would we want to send more money out of the country to Brazil when we already send 1B a day out of the country for oil?
    Most of the anti-ethanol rant has very little credibility when the sources of funding are tracked down...big oil, radical environmental groups, and those who could care less about our national security.
  • Showdown
    Ethanol is America's best renewable fuel. It's reliable, affordable and doesn't require a change in our infrastructure. Just pull up to the pump and fill up your car. Most consumers don't even realize that they use ethanol today and will not even notice an increase in the blend from 10-15 percent.
    A DOE study concluded that higher blends, 20-30 percent, have little impact on the fuel economy or performance in today's automobiles.
    As for food versus fuel, a study conducted by Texas A&M's Agricultural and Food Polcy Center said that corn prices have little to do with food prices. Ethanol plants only use the starch content of the corn, which consequently returns 30% of every bushel used to make ethanol, back to the feed market in the form of a highly nutritous soluble called DDGS.
    Today's farmers produce 4 times as much corn on the same acreage they did 40 years ago and yields are projected to double on these same acres in the next 20 years.
    The US ethanol industry creates US jobs. It doesn't make any sense to support the economy of nations in the Mideast or Brazil when we have an urgent need to bolster our economy at home. People are quick to hold "tea parties", and spout slogans such as "Buy American" but something as obvious as supporting a US industry such as ethanol gets bashed around in the media. It's time we take a look at what's important. US jobs and a clean environment semm pretty important to me, both of which is supported by the US ethanol industry.
  • Self-serving arguments
    The comments from Indymw and Dave Hudak are typical of those from the corn-ethanol lobby. They speak with forked tongue. Yeah, changes in corn prices don't have a large effect on food prices if you're using the Consumer Price Index (CPI) for food as your reference point. Almost half of the CPI for food is weighted by the cost of eating food in restaurants, for cripes sake (and we all know that the cost of a restaurant meal has little to do with the cost of the ingredients). One might as well talk about teh effect of ethanol subsidies on GDP. But given that househoild expenditure on food is $1,200,000,000,000 ($1.2 trillion) a year, even a fraction of a percentage change in that is big bucks -- in the tens of billion dollars a year in the case of the rise in grain and oilseed prices.

    Such price rises may be good for farmers -- or, more precisely, owners of arable land -- but not so great for everybody else. Similarly, the taxes that have to be paid to finance the ethanol subsidies may be good for farm states, but they are a clear transfer of wealth from the rest of the nation.

    Claims that the industry pays more in taxes than it receives in subsidies is besides the point. It begs the question of how much taxes would have been paid by industries adversely affected by high corn prices, and how many more jobs would have been created had the tax money that went to the ethanol industry been allowed to remain with other industries.

    Speaking of jobs, the claim of 400,000 jobs created by ethanol is a gross exaggeration, and can only be arrived at if one assumes that none of the inputs to the industry had alternative uses, which is clearly not true.

    Finally, it is ironic that corn producers, who used to fight hard for the elimination of import barriers in other countries, are now part of the coalition calling for continuing (now going on 30 years) to protect domestic producers from foreign ethanol, through the application of a tariff that is one of the highest (in percentage of the import price) charged on any imported product.

    Meanwhile, imported petroleum and petroleum products continue to enter the country virtually duty-free.
  • Octane
    The only way to make ethanol feasible is to increase the octance ratings of all fuels. Ethanol has a high octane but low energy content, where gas is the opposite. Engines built for high-octane fuels are more efficient (IndyCars), low compression ratio engines built for gas are a waste of Ethanols potential. The solution is to mandate a higher octane fuel (~95), which would enable carmakers to build smaller, more efficient engines and put gas and ethanol in a true head-to head matchup.
  • Adjusting for higher octane
    Justin, do cars need to be built differently to optimize for higher-octane fuel, or can that be done through adjustments to fuel systems on existing cars as well?

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