E85 Boondoggle Of The Day: Indiana Tapped Out

The Indianapolis Business Journal reports that Indiana’s E85 subsidiy slush fund has run out of cash just three months into that state’s fiscal year. High demand for E85 in the summer months when regular gas cost over $4/gal caused the state subsidy of 18 cents/gal to rapidly run through its earmarked funds. Now, with gas under $2/gal, E85 demand is tanking just as the subsidy ran out, leaving ethanol boosters in a tough spot. “In June or July, we could sell E85 blindfolded,” says Jim Gentry, fuel purchasing manager for Greenfield-based GasAmerica, one of the first firms to sell E85 in the Indianapolis area. “Back in the summer, we didn’t need the 18-cent [state tax] credit.” Now? “We blew through that money,” admits Kellie Walsh, executive director of the Central Indiana Clean Cities Alliance. “I am anxious to see whether gasoline prices dropping has our flex-fuel customers continuing with E85 or if they’re going back over.” One E85 retailer says his firm hasn’t given up on E85 yet. “That being said, that’s not to say it’s the smartest business decision at this point in time,” says Ed McClure, CEO of Marionbased McClure Oil Corp. Except that Indiana still offers a $20k grant to install E85 pumps even though such conversions can be done for as little as $15k.

Of course, Indiana’s E85 pimps are lobbying the state government to re-authorize the subsidy. Fuel vendors are the only retailers forced to prepay their sales taxes, and early next year gas retailers will pay state sales tax based on stratospheric summer gasoline prices. The tax calculation is made every six months, forcing fuel retailers to essentially front the state the money for six months until they get it back during the next calculation. But the Indiana Petroleum Marketers & Convenience Store Association argues many stations won’t last that long and is seeking help from the Legislature or governor. After all, things can be so rough when an unsustainable, government-inflated price bubble pops. After all, if you subsidize ethanol when it doesn’t need it, what do you do when it does?

In other ethanol bubble-popping news, the USDA is dropping its estimates for ethanol’s corn consumption in 2009 according to Green Car Congress. In November, the USDA’s World Agricultural Supply and Demand Estimates projected that 4b bushels of corn would be refined into ethanol. Now it’s estimating that only 3,700m bushels will be used, “as prospects for blending above federally mandated levels decline.” Unfortunately, that’s still 30.8 percent of all projected 2009 corn production, and a 22.3 percent increase over the past year’s use. Oh, and federal mandates will continue to ramp up each year, unfettered as they are to any organic changes in demand for the corn juice. So fear not, ethanol teat-suckers and E85BOTD lovers. This crazy train ain’t going off the rails anytime soon.