Will The BP Oil Spill Lead To More Ethanol Subsidies?

Slate‘s Robert Bryce reckons so. With ethanol producers and blenders bouncing off the ethanol “blend wall” and into bankruptcy court, Bryce figures

Now the industry is counting on a president beleaguered by the made-for-TV crisis in the Gulf of Mexico to help it out. And he appears ready to do just that. On April 28, six days after the Deepwater Horizon rig sank, President Obama visited an ethanol plant in Missouri and declared that “there shouldn’t be any doubt that renewable, homegrown fuels are a key part of our strategy for a clean-energy future.” Obama also said, “I didn’t just discover the merits of biofuels like ethanol when I first hopped on the campaign bus.”

The strongest indication that an ethanol bailout is imminent came last Friday when Agriculture Secretary Tom Vilsack (former governor of Iowa, the nation’s biggest ethanol-producing state) said, “I’m very confident that we’re going to see an increase in the blend rate.”

The heart of the problem: overbuilt ethanol refining capacity. Thanks to generous “blender’s credits,” ethanol refining capacity has more than tripled over the last five years. With 13b gallons of built-up capacity, over 1b gallons of capacity are standing idle… even as another 1.4b gallons of capacity are being built. According to the Earth Policy Institute, the ethanol industry used about a quarter of America’s domestically-produced grain last year, or “enough to feed 330 million people for one year at average world consumption levels.” Meanwhile, the “blend wall” doesn’t even reach 12b gallons until next year, meaning overcapacity is here to stay. Unless a bailout comes along.

And that, says Bryce, is exactly what’s about to happen. Because ethanol is a purely political project, the symbolism of the oil spill is not being left under-leveraged.According to the president of the Renewable Fuels Association:

The Gulf of Mexico disaster serves as a stark and unfortunate reminder of the need for domestically-produced renewable biofuels.

Even though the previous champion of Gulf of Mexico environmental destruction was… wait for it… the ethanol industry! But, as Rahm Emmanuel is so fond of saying, a crisis is a terrible thing to waste. Don’t be surprised if ethanol takes full advantage of this one.