E85 Boondoggle of the Day: Bailouts for Ethanol Plants
Ethanol producers are jockeying for a seat on the increasingly crowded bailout bandwagon. Just last Friday, the U.S. Department of Agriculture Secretary Ed Schafer addressed the plight of those poor, poor businessmen who got locked into the cost of corn this summer. Just like oil and natural gas, the current price is half of what it was at its peak. Fierce competition and the economic downturn are contributing to thinning of their ranks. Schafer claims that “the ethanol industry is too important to the nation to allow it to go into more financial difficulty.” The USDA is prepared to provide bailouts loans of up to $25m– an offer which sparked a backlash from livestock producers. They’ve been whiplashed by the price of corn, first as it shot up thanks to ethanol production, then by taking long positions and taking a hit as corn prices plummeted. As usual, the customer is going to get the shaft: don’t expect much of a price break on your E85 or pork bellies anytime soon.
More by Richard Chen
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I thought the price of corn was only supposed to go up. Damn supply and demand rules! Can I get $25m loan now?
This is a waste of time. Ethanol isn't the answer.
Why is it that so many alleged car enthusiasts are so down on the idea of 95 octane E10 or 105 octane E85? I would personally like to see high octane ethanol mixes become the standard auto fuel in the US so that Detroit would tune their engines to be optimized for this fuel. By the gray hair in your photo, Mr.Chen, I assume that you are old enough to remember when unleaded fuel was mandated in the early 1970s how it dropped the octane and substantially lowered performance and mileage. We have the opportunity to turn that around if ethanol survives and remains part of the fuel mix. I don't understand why you would be opposed to higher performance engines getting better mileage and producing less polluting exhaust.
One solution is a flex-fuel mandate on all new cars sold in the U.S. (there is a proposal in Congress for this already called the Open Fuel Standards Act S.3303). But even going the Libertarian route by removing government subsidies and bailouts for ethanol (assuming all tax subsidies and bailouts are also removed), ethanol production and usage is still the right thing to do. This is as long as the U.S. is willing to 1) accurately and completely account for the hidden costs of the oil-based status quo, 2) open our markets to foreign producers, 3) encourage farmers and ethanol producers to adopt perma-culture in their various processes, 4) use less fuel, and 5) drive cars that can efficiently use ethanol.