Caught in a Lie

I have seen a lot of claims lately from the pro-ethanol contingent that the ethanol subsidy is actually a “Big Oil” subsidy. That claim is repeated in the following newly published article:

Ethanol subsidies won´t lower gas prices, consumer group reports.

July 28 — Increased federal and state subsidies for ethanol production will not benefit consumers in the form of lower gas prices, according to a study by a nonpartisan consumer tax group.

Taxpayers subsidize the ethanol industry to the tune of $2 billion per year through an ethanol tax credit of 51 cents per gallon and government corn-crop payments, the National Taxpayers Union report said. The report criticized the industry for not being able to compete in the marketplace despite “nearly 30 years of government help and protection,” said Jeff Dircksen, NTU policy analyst and author of the study.

Long-term, continued corn overproduction could drop the price of corn, forcing taxpayers to subsidize farmers further. A drop in oil prices would make ethanol less competitive. The NTU estimates every dollar of ethanol profit costs taxpayers $30.

“Despite federal and state subsidies, a guaranteed market that is protected from international competitors and millions of dollars from private investors, it is abundantly clear that ethanol is not and may never be a truly competitive energy alternative,” Dircksen said.

But the ethanol industry lashed out at the report, calling it misleading and cautioned consumers not to take it at face value.

“The only thing abundantly clear is that NTU´s study is nothing more than a deceptive piece of propaganda with no basis in reality,” said Brian Jennings, executive vice president of the American Coalition for Ethanol.

The report incorrectly points out that ethanol producers benefit from the 51-cent Blender´s Tax Credit when it is actually an incentive the petroleum industry receives for blending ethanol into gasoline, Jennings said.

So, is Brian Jennings correct? Do ethanol producers actually not benefit from the subsidy? Interestingly enough, Jennings’ previous comments on the subject tell the true story. From:

Exxon Mobil CEO calls for an end to ethanol subsidies

Exxon Mobil Corp., after posting a record $36.1 billion in profit last year from surging oil prices, said the United States should end 28 years of subsidies for a competing fuel made from corn because the subsidies benefit domestic growers.

“We’ve never been a supporter of subsidies under any conditions because they distort market signals,” chairman and Chief Executive Rex Tillerson said in a New York interview Tuesday. “What the government has done is stick a filter between the signals of the market and consumers. The fact that the subsidies exist shows it’s not a viable alternative.”

Tillerson rejected President George W. Bush’s call for increased government aid for ethanol, a form of grain alcohol that’s blended into about one-third of U.S. gasoline. Surging energy prices helped Exxon to the most profitable year ever for a U.S. company.

How do you think Brian Jennings reacted to the call for an end to the subsidy? After all, ethanol producers don’t benefit, as he stated above. Odd then that he replied:

“In the face of pornographic profits being made by oil companies and the reality of higher gas prices this year, it is outrageous for an executive for big oil to actually suggest getting rid of the tax credit for ethanol,” said Brian Jennings, executive vice president of the American Coalition for Ethanol in Sioux Falls, S.D.

Does Brian Jennings have an evil twin? Or did he get caught talking out of both sides of his mouth? He seems a bit defensive about keeping a credit that he claims doesn’t benefit his industry.

Just another reason I get so wound up over the ethanol issue. Too many on that side of the argument can’t stand open and honest debate. It is distort, lie, and misinform.

10 thoughts on “Caught in a Lie”

  1. Thinking of the price of ethanol, I was wondering if simple market forces could (evetually) show Ethanol to be the energy sink that it is.

    Given the increasing cost of all fossil fuel inputs to Ethanol, then price of ethanol should also rise appropriately and this would take care of the ethanol problem.

    subsidies of course distort the picture substantially. Its good to see you bringing this out in the open.

  2. Your point is exactly correct. The rising cost of fossil fuels will lead to a rising cost of alternatives with poor EROI. However, the subsidies distort that picture.

    Incidentally, I had a 1.5 hour conversation yesterday with Vinod Khosla. It is the next essay in the queue.

  3. In a market economy, rising cost of fossil fuels will lead to rising cost of alternatives with _GOOD_ EROEI as well. Capitalism is not a cost-plus proposition — producers charge whatever the market will bear.

    Interchangeable commodities are always price-linked. Of course few commodities are perfectly interchangeable so you may get temporary disruptions, and subsidies can distort the linkage, but as a general rule it’s pretty much inviolable.

    Ethanol prices will generally track gasoline prices, plus/minus subsidies, for the foreseeable future. It has nothing to do with EROEI.

  4. Rangachari said, “Given the increasing cost of all fossil fuel inputs to Ethanol, then price of ethanol should also rise appropriately and this would take care of the ethanol problem.”

    Excellent point Rangachari,

    Given the seemingly ever increasing costs of fossil fuels, it really makes one wonder why the ethanol industry continues to remain dependent on fossils fuels doesn’t it?

    Especially when the ethanol lobby constantly drives home their main talking point that making ethanol returns more energy than its production consumes.

    I don’t know about you, but if I knew of a process that made more of something than it consumed, I’d figure out a way to use that product as the feedstock for making more.

    In fact, if there was a process that continually made more of the product than it consumed, you would have to impose controls on the production of that product; otherwise it would lead to a self-reinforcing, positive feedback loop that would soon cause such a glut that the value of that product would become worthless.

    But so far I haven’t seen the ethanol industry reducing their dependence on finite fossil fuels; nor have I noticed a glut of corn ethanol driving the price of that product down.

    Best regards,

    Gary Dikkers

  5. gary dikkers said, “But so far I haven’t seen the ethanol industry reducing their dependence on finite fossil fuels; nor have I noticed a glut of corn ethanol driving the price of that product down.”

    If you haven’t noticed the ethanol industry reducing its use of fossil fuel, and if you haven’t noticed the price of ethanol dropping because of increased production, you really haven’t been paying attention at all.

    As to the question of subsidies, do you suppose asking the oil companies to reimburse us for the defense costs we incur on their behalf would bring the distorted picture somewhat back into focus?

  6. As to the question of subsidies, do you suppose asking the oil companies to reimburse us for the defense costs we incur on their behalf would bring the distorted picture somewhat back into focus?

    The oil companies aren’t the ones benefiting from that, consumers are. Let’s presume for a second that no military action was going on, and oil prices were higher as a result. Do you think that wouldn’t result in higher gasoline prices? Of course it would. Any additional costs incurred by the oil companies are going to be reflected in your gasoline bill. So, military “subsdies” are consumer subsidies, not oil company subsidies.

  7. Anonymous said, “If you haven’t noticed the ethanol industry reducing its use of fossil fuel, and if you haven’t noticed the price of ethanol dropping because of increased production, you really haven’t been paying attention at all.”

    Anon,

    I have noticed corn farmers complaining about the price of natural gas-based nitrogen fertilizers and diesel fuel, and ethnaol plants complaining about the price and availability of natural gas. (Not long ago, an ethanol company abandoned plans to build a plant not far from me when they discovered at the last minute there was no natural gas pipeline near that location. That’s quite a limiting factor for a product that is supposed to produce more energy than it consumes, isn’t it?)

    If ethanol really had the positive net return on energy invested the ethanol industry continually claims, they would not only reduce their use of fossil fuels, they would quit using fossil fuels.

    * There would be a glut of ethanol if it’s production was 167% efficient as the USDA-sponsored Argonne study claims. (Everytime I see “USDA-sponsored” on the title page of that study I get suspicious, don’t you?)

    * Any production system that was actually 167% efficient would need artificial production controls to keep from driving the price so low it would have little market value.

    Best,

    Gary Dikkers

  8. military “subsdies” are consumer subsidies, not oil company subsidies.

    Yes, but if the price of gas reflected the true cost, gas would be much less widely used. The oil companies would, in that case, be much less financially and politically powerful. Not that your basic point isn’t valid, because it is.

    I think the biggest (direct) subsidy to the oil companies comes in the form of the environmental costs they are allowed to externalize, both domestically and (much more so) overseas. But again, you could argue that were they forced to internalize those costs, they would be passed on to the consumer, so they’re really consumer subsidies rather than corporate ones. Which brings us back to my original point…

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