By on May 11, 2011

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.

Where to start with the myriad reasons to end government support of a fuel that has done little besides replacing High Fructose Corn Syrup as the number one “stealth subsidy” for the agricultural business? Let’s begin with news that proves the futility of underwriting this failed fuel, namely the Detroit News‘s report that ethanol production actually dropped 1.5% last year, despite the billions in subsidies it receives. Just as the VEETC needs subsidies in order to stimulate market demand for the fuel blends it already subsidizes, this dispatch proves that no amount of government money is a substitute for organic market demand. If the government needed an excuse to cut bait, this should be enough.

Another sign that ethanol subsidies have reached the limits of their efficacy: a report from GreenCarCongress, showing that 75% of all hybrid and AFV (alternative fuel vehicles) in the US are E85 “flex fuel” vehicles. That’s a sign of success you say? Think again. E85 consumption in 2009 only hit 71,213 thousand gasoline-equivalent gallons, which means each “green” flex fuel vehicle uses about 1/10th of one gallon of E85 per year. So even if people (or governments) buy flex fuel cars, they still choose not to run E85… which is no surprise, given that E85 regularly returns worse fuel economy. Unfortunately, the government’s ethanol blending mandate will basically require a huge sift back to E85 in order to work, so once again the government is trying to subsidize through a brick wall.

And as discouraging as these short-term signals are for the government’s attempts to create a sustainable ethanol industry (if, in fact that was the goal of ethanol subsidies), when stacked against the long-term costs one gets a real sense of the waste involved. According to a new book published by Stanford’s Hoover Institute,taxpayers will have spent “nearly half a trillion dollars” between 2008 and 2017 on a fuel that nobody wants to use. That’s right, Five Hundred Billion Dollars, or enough for more than ten auto bailouts (assuming zero payback). And while we spend $6b this year on the VEETC en route to that staggering price tag, the head of the Renewable Fuel Association still has the gall to whine that “the future of biofuels is tied to the price of oil.” Anyone else just throw up a little bit?

But despite all these signs that ethanol subsidies are accomplishing nothing at a huge cost, this new bill to eliminate the VEETC and ethanol import tariffs is no sure thing. Remember, far more than being about the environment or energy security, ethanol is about politics… namely the fact that Iowa is a key early presidential primary that no candidate wants to lose. Even the arch-Greenie Al Gore himself admits that he “regrets” his support for ethanol, but

One of the reasons I made that mistake is that I paid particular attention to the farmers in my home state of Tennessee, and I had a certain fondness for the farmers in the state of Iowa because I was about to run for president

With a presidential election looming in 2012, any efforts to kill ethanol subsidies will be met with stiff opposition from grandstanding presidential hopefuls, hoping to steal the Iowa primary. Here’s hoping that, for once, policy actually trumps politics.


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30 Comments on “Bipartisan Bill Seeks To End Cornerstone Ethanol Subsidy...”

  • avatar

    Between this and HFCS we really need to break the back of Big Corn.

  • avatar
    Educator(of teachers)Dan

    You guys should like this story from my neck of the woods.

    • 0 avatar

      Yup. Love the money quote:

      “We are looking at a couple different things with the E-85. One is the cost. The fuel efficiency, and some problems with fuel pumps.”

      The worm has turned… but the Iowa primary remains.

    • 0 avatar

      I don’t like the ethanol thing – less efficient and using food for gas. I think there are other ways to make fuel for power plants and such, but not much choice for vehicles besides what we have now – gasoline and diesel oil. I’m happy that ethanol appears to be fading away.

      I’m fading away for a short vacation! back on Monday. Happy Trails!

  • avatar

    While I’m not always in agreement with Ed when it comes to politics, count me in 100% regarding the stupidity of our ethanol policy, and the need to kill it with fire. But before we start singing Kumbaya, let me point out that Bush’s “hydrogen fueled cars will be competitive by 2010” strategy was at least as stupid.

  • avatar

    While I absolutely agree with you about the ethanol boondoggle, the following quote just seems over the top:

    “as a major plank of his do-nothing transportation/energy agenda”

    First off, it’s wrong. You not like what the policy does, but do-nothing it is not. Second, hyperbole undermines journalistic credibility. The Administration’s transportation policy is complex (as any such policy would tend to be) and the implication that *nothing* in the policy has value strikes me as churlish.

    Finally, Iowa calls to Republican hopefuls as well as Democrats.

    • 0 avatar
      DC Bruce

      Ahh, my favorite one-word, sly put down: the issue is “complex” i.e. “you’re too much of hick to understand it, so don’t even try.”

      You’re absolutely correct, the administration’s transportation policy is “complex.” But the complexity stems from its attempts to satisfy a number of competing constituencies, only one of which happens to be interested in reducing petroleum consumption, carbon emissions, etc.

      And it is just that “complexity” which should lead people to inquire into whether the policy is accomplishing its stated purpose (assuming, for this discussion, that the purpose is legitimate, etc.). In the case of ethanol from corn, the answer is clearly, “no.”

    • 0 avatar

      This is a discussion best held in the comments section of my earlier piece on Obama’s “Energy Agenda,” but I do honestly believe that his transportation policies are “do nothing.” As I pointed out yesterday, the “policy” consists of waiting on EVs to improve while subsidizing the early adopters who would be buying anyway, while refusing to stop the biofuel madness. Between a gas tax increase, EV battery swap and natural gas he has plenty of better options and I believe his choices reflect timidity.

      Finally, Iowa calls to Republican hopefuls as well as Democrats.

      True that. Grassley (R-IA) is the guy who saved the VEETC. I’m not attacking Obama out of knee-jerk orthodoxy (I’ve revealed before that I voted for the guy), but because I really think he is missing an opportunity on transportation/energy.

      • 0 avatar

        The Administration policies were far from “do nothing”. The policy was to drive up the costs of cars and driving as much as possible, by using enviro regs (though CAFE is Congress-made), safety regs, with LaHood being used as the attack dog. Far from timidty.

  • avatar

    The reality is, Obama is doing what politicos in this country do best: talk a good talk. They are *all* scared of the agricultural lobby, who is the ultimate beneficiary of this insane set of credits and subsidies (bribes).

    Until this country grows the balls to make hard decisions and then be able to explain them well, this kind of crap will continue.

  • avatar
    Robert Schwartz

    The photo at the top of the post is of a field in Dublin, OH, very close to where Baruth grew up.

  • avatar

    STUPID STUPID STUPID you can grow diesel and it works but this is stupid putting food in your fuel tank and driving up food prices Typical US subsidy driven farming but really dumb this time

    • 0 avatar
      Educator(of teachers)Dan

      And at least if you recylce fast food grease into diesel your doing something with actual trash.

    • 0 avatar


      Given the inefficiency of the process between growing corn and delivering it as fuel, this policy makes no sense in the first place.

      Jumping on soapbox:

      This country needs to overhaul the process of electing the president, from caucuses to the electoral college. It’s democratic in name only. It’s the 21st century now… time for one person-one vote.

  • avatar
    Sam P

    Somewhat OT but: Iowa needs to give up its status as the first primary state, as its demographics and economic needs are far out of whack with the nation as a whole.

    I’d pick Texas as its demographic makeup and diverse economy are much more representative of the United States, even if its politics are tilted a bit to the right of the country as a whole.

    • 0 avatar

      Texas really is a mini-USA, to the extent that different corners of Texas mirror the corresponding parts of USA (southwest, northeast, etc), as exemplified by San Antonio, Dallas, Houston, etc.

    • 0 avatar

      Why have a “first” primary state at all? Schedule them all on the same date, and let EVERYBODY have a voice.

      • 0 avatar

        Putting them all on the same day means you don’t get to watch one of the candidates slowly self-destruct on national television as their campaign unravels. That’s good for democracy and, more importantly, makes damn good television.

        Instead, they should be spaced two states per week for a half a year, with the order determined by a random number generator.

  • avatar

    I run ethanol free “recreational 90” Pure gasoline mid grade in all of my cars now. My 2009 Corolla, which ran like hell on the E-10 (and was the subject of a piston slap a few months back) runs great now. No more “marble in a coffee can” sound and mysterious drops in RPM’s at idle. Plus I’m averaging 34mpg rather than 29. Its hard to describe how much better all of the cars run on pure gas… It’s like an invisible hand that was holding the engine back was removed.

    I have a stockpile of 75 gallons of E-0/”recreational 90″ for hurricane season too (with fuel stabilizer)! Had to replace the carb in my generator due to the corn crap. Will burn it in my cars in November (I hope)

  • avatar

    Never mind the taxes, subsidies and the politics, bio-fuel is the most appalling concept ever conceived. Corn could be a great export for the USA and many countries would buy ever ear they could, but no… we choose to turn it into fuel and sweetener…
    I also think is hugely unfair to lay blame at Obama’s feet here. He is, after all, trying hard to work with the complete mess handed to him by his predecessor and now that the economy has avoided complete collapse, the man is getting started with less urgent matters, like the future.

  • avatar

    Corn ethanol is the Rube Goldberg HOAX that keeps on getting. Corn sucks alot of land, water, fertilizer and diesel. It is a “biofuel” in name only. It cant be piped, requires dedicated tankers that are always empty on the backhaul, causes drivability and mileage problems and is under constant price pressure from gasoline. Only midwest corn farmers, processors, E producers, railroads, their lobbyists and politicians think its GREAT!

    The biofuel we should be promoting, biodiesel, gets NO VEETC. BioD improves the cetane of the diesel pool as well as displaces petroD and drops into every diesel made. Why wouldnt we want that?

  • avatar

    VEETC just kicked in, yo!

  • avatar

    VEETC should die but not because it subsidies farmers, because it doesn’t. The people getting the money from it is the oil companies. They are the ones that get a 4.5 cent/gal for making E10. Since the vast majority of cars loose from 5-15% using E10 it increases the amount they sell too. To add insult to injury most oil companies have taken the opportunity to raise the price and blame it on the E10 mandate in those states that have such laws.

    So the oil companies get to lower their cost by purchasing the cheaper ethanol, get a tax credit, raise their price, and sell more.

    E85 on the other hand is a good idea, having farmers farm rather than pay them not to farm is a good thing. E85 is a great performance fuel, take a look at drag strips in the midwest and you’ll find it heavily used thanks to it’s 101 octane and the fact that its half the cost of racing gas.

    The good FFVs from Ford and GM only loose 15-20% when operated on E85 which actually varies from 70% to 85% depending on the season and location. So the net loss in the real world vs E10 isn’t near as bad as the EPA estimates which are done with pure gas and the E85 results only calculated based on the BTUs of full E85 which is only available in about 3 months a year. Blender pumps dispensing E40 or E50 is a great idea because at that blend you get the best of both worlds an increase in TQ HP and MPG and it also reduces the use of foreign oil.

  • avatar

    So much ethanol hate.

    Did not Brazil, which currently has a booming economy, make the switch from gas to E100? I’m sure it wasn’t a smooth road, but they did it, and now they can sell their oil reserves to the U.S.

    Ethanol is not going to solve our energy problems, but it is one prong in the pitchfork that is slowly making a dent in our oil consumption.

    Between the trillions we spend on defense, Social Security, Medicare,and golden toilets, whats $6 billion to blend in some ethanol?

    I guess I am the only one who is going to stand up for ethanol as a way to wean ourselves off of oil. Cellulosic ethanol is not some pipe dream; it is real. The problem is, much like we’re now doing with EV’s, the government put the carriage before the horse. We’ve got all these FlexFuel vehicles and nowhere to fill them up. There’s all of ONE E85 gas station in New England, but I see FlexFuel vehicles all the time.

    Again, Americans need options when it comes to fuel, not “one fuel fits all.” Is it really such a pipe dream to hope that one day I can pull into a fueling station and have my choice of gas, diesel, E85, CNG, propane, or even hydrogen?

    Kill the Big Oil tax subsidies worth $21 billion and keep VEETC.

    • 0 avatar

      @Chris, Brazil’s ethanol production has little to do with the US scenario. Ethanol from sugarcane is actually cost-effective, unlike this VEETC subsidy fiasco that succeeds only in raising food prices.

      Once cellulosic ethanol is in production (and I’m happy to subsidize THAT research), the scenario will be different.

  • avatar

    Please don’t lump all of Iowa into one category. Less than 10% of the states population are farmers. There are many people like myself in this state that think ethanol is a joke and would actually prefer an honest candidate come out against it. I think they may be surprised by the support they get.

    • 0 avatar

      And as far as anyone who would rather their state be first in the primaries, you are welcome to it. You have no idea how horrible it is here in Iowa during the primaries with constant ridiculous political ads and phone calls.

  • avatar

    If we change the order of states for primaries in presidential elections we will surely cure this disease. And give the rest of us a chance to pick the leaders instead of leaving it up to 5 or 7 states to decide.

    I think we should have all primaries on the same day. Top 2 from each party square off 8 weeks later. Have the silly conventions and vote. The fringe parties would have as much chance as the Big 2 and it would be fair for everyone. Think of it as three votes to decide for SURE who is best suited to spend our trillions every year.

    Less advertising that way too.

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