Ethanol

Government Motors Joins Anti-Ethanol Crusade

by Brian McGraw on February 18, 2011 · 6 comments

in Energy, Ethanol

This might make things interesting, as the past few years have demonstrated the extent to which certain aspects of G.M. have clout in Washington: Automakers want House to block 15 percent ethanol blend. Also consider the obvious irony of a partially government-funded/owned company opposing policy supported by the Obama administration — the “slam on the breaks while hitting the gas approach.”

The Big 3 hadn’t been too loud on this issue, though they did join a lawsuit attempting to prevent EPA from approving the fuel late last year. Representative Sullivan (R-OK), as previously mentioned here, has introduced an amendment (of which there are almost 600 introduced amendments) to be attached to the CR which would de-fund EPA’s ability to introduce E15.

Much like the strange bedfellows who opposed the extension of the VEETC last year, the article notes:

“Our organizations rarely agree on any public policy issue, but we are united in opposing the premature introduction of E15,” said the letter that was also signed by the American Bakers Association; American Meat Institute; American Petroleum Institute; National Petrochemical & Refiners Association; National Turkey Federation; Outdoor Power Equipment Institute; and Specialty Equipment Market Association.

While testing done on vehicles from MY 2001-present have been confirmed by the EPA as able to handle blends of E15, a positive conclusion has not been reached for a number of other engine types (motorboat, lawnmower, etc.). Some manufacturers of non-automobile engines have stated they already struggle with E10, which is commonly sold throughout the United States, and are very concerned with the declining availability of gasoline without ethanol in it as well as increased damage by misfueling.

It’s hard to tell who would support this amendment. Most Congressman don’t consider ethanol to be a big issue, and the farm-belt will stand behind it. Many Democrats don’t support the extension of ethanol policy but might see this issue framed as an attack on the EPA which they would feel inclined to defend.

Anti-Ethanol Legislation Begins Popping Up

by Brian McGraw on February 15, 2011 · 3 comments

in Energy, Ethanol

Two bills have recently been introduced that intend to block efforts made to increase U.S. consumption of ethanol.

The first, from Rep. John Sullivan (R-OK), intends to cut funding for EPA’s E15 program. My understanding of the legislation is that “cutting funding” for the program is the equivalent of ending it, as the EPA needs funds to carry out the remainder of the regulatory process (permits, guidelines for fueling stations, E15 warning stickers, etc.).

The second is from Jeff Flake (R-AZ), would end the VEETC and corresponding tariff on foreign ethanol.

Both bills would slightly limit the excessive production of corn ethanol (a good thing), but the bigger problem is the ever-increasing mandate known as the Renewable Fuel Standard. An ideal bill would end the mandate, tax credit, tariff, end the law that allows E-85 vehicles to qualify for mileage standards, and end EPA’s ability to regulate the amount of ethanol in our fuel. Then the ethanol industry couldn’t fairly argue that they’re being denied access to the market. Some energy analysts even believe E85 could exist profitably as a niche industry in the mid-west.

Realistically, in the short run, petroleum would still dominate. However, freeing capital away from politically motivated ends makes it more likely that capital will flow into areas that will actually generate benefits for consumers. It is unclear if that will ever happen with corn ethanol and/or its variants (cellulosic, biodiesel, etc.).

Here is a good piece (and a challenge) by Tim Carney on the ethanol’s industry claim that they’re being unfairly denied access to the fuel market by the EPA. Of course, the ethanol industry is being incredibly disingenuous in its calls for fair competition. They have done this before.

What’s In Store for Egypt After Mubarak’s Departure?

by Hans Bader on February 12, 2011 · 1 comment

in Agriculture, Energy, Ethanol, International, Trade

Recently, Egypt’s pro-American dictator, Hosni Mubarak, was forced to resign after 30 years in power, and forced to give way to a military-controlled government.  Victor Davis Hanson has some interesting reflections on the revolution in Egypt at this link.

Earlier, we discussed the role of ethanol subsidies and biofuel mandates in increasing support for the Muslim Brotherhood, an anti-American group opposed to Mubarak, at this link.  By indirectly increasing wheat prices, ethanol subsidies drove up unrest in Cairo’s slums, which are more supportive of the Muslim Brotherhood than they are of Egypt’s historically much smaller pro-western democracy movements.  (Egyptians historically have spent nearly half their income just on food — more than that in the slums of Cairo and Alexandria, Egypt’s largest cities).

The Washington Post‘s editorial board and various columns in the Post, like one by Professor Tim Searchinger, agreed about the folly of ethanol subsidies and their role in contributing to misery and unrest among Egypt’s poorest.

Lowest Corn Reserves in 15 Years — Food Prices to Rise

by Fran Smith on February 11, 2011

in Agenda for Congress, Agriculture, Ethanol

The New York Times noted in an article yesterday that food prices are expected to rise this year as a result of significantly lower supplies of corn reserves — the lowest since 1996 — and a higher use of corn for ethanol. The food vs. fuel tug continues, with the ethanol mandate, the ethanol tax credit, plus massive subsidies causing more and more corn to be diverted to ethanol production rather than food. (See CEI colleague Brian McGraw’s post today.)

The U.S. Department of Agriculture announced February 9 that U.S. corn stocks are projected to be 70 million bushels lower this month, while the use of corn for food, seed, and industrial use will be higher than expected. USDA also said that corn for ethanol use is expected to be 50 million bushels higher — with a record ethanol production for December and January.

With corn prices almost doubling from six months ago, USDA is projecting that those food items most affected by corn used for feedstock will rise in 2011. Thus, pork prices are likely to rise 3.5 to 4.5 percent, beef prices, 2.5 to 3.5 percent, poultry prices, 2 to 3 percent, egg prices, 2.5 to 3.5 percent, and dairy, 4.5 to 5.5 percent.

Check out this and some of the extensive articles CEI has published on the unintended consequences of the ethanol program.

Biofuels and Rising Food Prices

by Brian McGraw on February 11, 2011 · 2 comments

in Energy, Ethanol

The ethanol industry is, again, being hammered by the media. This time its The Washington Post, publishing an op-ed by Tim Searchinger, a professor at Princeton University: How biofuels contribute to the Food Crisis.

Searchinger gives a fair, honest estimate of the effect biofuel production has on food prices and convincingly refutes a number of common talking points put out by biofuel enthusiasts:

Nearly all assessments of the 2008 food crisis assigned biofuels a meaningful role, but much of academia and the media ultimately agreed that the scale of the crisis resulted from a “perfect storm” of causes. Yet this “perfect storm” has re-formed not three years later. We should recognize the ways in which biofuels are driving it.

He also notes the severity of the situation:

Each year, the world demands more grain, and this year the world’s farms will not produce it. World food prices have surged above the food crisis levels of 2008. Millions more people will be malnourished, and hundreds of millions who are already hungry will eat less or give up other necessities. Food riots have started again.

These are real problems. Government policies promoting the excessive production of biofuels could literally be killing people. This never seems to weigh heavily on the conscience of the politicians who support these fuels (of which there are hundreds).

Growth Energy got predictably upset with the op-ed, and have already published a same day rebuttal:

Once again displaying his willingness to ignore science, peer-reviewed research and the best available data, Tim Searchinger has authored another intellectually-bankrupt attack on farmers and renewable, clean-burning biofuels, this time in an op-ed in the Washington Post.

The notion that ethanol is causing the food crisis blithely ignores market realities, global trade agreements, the domestic farm policies of sovereign nations, and the impact of Wall Street’s rampant speculation.

They set up a nice strawman argument (and got in a nice populist dig against Wall Strett) — Searchinger didn’t claim that biofuels caused the crisis, but that they contribute to it.

Growth Energy has had to defend the ethanol industry from attacks coming from almost all mainstream media sources.  Not an easy attack, I assure you.

Egyptian Riots Fueled by Ethanol Subsidies and Biofuel Mandates

by Hans Bader on February 4, 2011 · 5 comments

in Agriculture, Energy, Ethanol, International, Trade

As world food prices hit a record high, protests in Egypt demand the removal of the country’s pro-American dictator, Hosni Mubarak. No one can predict with certainty whether his removal after 30 years in power would lead to a constitutional democracy, or a theocratic despotism. The likelihood of an even worse regime replacing Mubarak is real, and has been increased by the widespread diversion of cropland to produce biofuels rather than food. That in turn has led to rising food prices that have fueled unrest among the poor in the teeming slums of Egypt’s capital city of Cairo.

Increased food prices have also led to increasing support for the anti-American Muslim Brotherhood, which has ties to the terrorist group Hamas: it provides relief and welfare services in the slums, increasing its popularity in times of economic distress, and it enjoys greater support among the country’s poor than among Egypt’s smaller and more Western-oriented middle class.

The Telegraph, a leading English newspaper, calls the recent unrest in Egypt and the Middle East “food revolutions.” It points out that “biofuel mandates” have “diverted a third of the US corn crop into ethanol for cars,” reducing food supplies and driving up food prices. “So instead of growing wheat, our farmers are growing corn in order to cash in on ethanol subsidies.”

Egypt is the world’s largest wheat importer, and  imports “more than half of its food supply.” As CNBC notes, “It is food inflation that is” most fueling opposition to the Mubarak regime among the country’s poor. Egyptians have historically spent over 40 percent of their income just on food.

As Slate notes, the “anti-Western” Muslim Brotherhood “remains the only political movement” in Egypt that is “capable of providing nongovernmental charitable services. This gives it a reliable political base in the slums of Cairo and Alexandria.” Rising food prices have cemented that base, and driven previously apathetic slum-dwellers into the streets, shifting the locus of opposition away from the more Westernized middle class.

Obama has been an avid supporter of ethanol subsidies, with close links to the ethanol lobby, unlike Obama’s 2008 opponent, John McCain, who opposed ethanol subsidies. The Obama administration has pushed ethanol mandates, even though they have a history of helping spawn famines and food riots overseas. For example, the costly climate-change legislation backed by the administration contained ethanol subsidies. The administration supports them even though ethanol makes gasoline costlier and dirtier, increases ozone pollution, and increases the death toll from smog and air pollution. Ethanol production also results in deforestation, soil erosion, and water pollution.

Leading environmentalists have lamented the devastating impact of ethanol and biofuel subsidies on the global environment.

Even commentators with close links to the Obama administration have admitted that ethanol subsidies are a terrible idea. Matt Yglesias at the liberal Center for American Progress, which has close ties to the administration, admits that “ethanol subsidies aren’t a good way to clean the environment, but they’re a great way of raising the price of agricultural commodities.” Economists more critical of the Obama administration, such as Larry Kudlow, have been scathingly critical of ethanol subsidies, linking them to the recent unrest in Egypt and “skyrocketing food prices.”

Ethanol mandates also contributed to starvation, food riots, and a growing anti-American uprising in Afghanistan back in 2008.

Ethanol and the Egyptian Riots

by Hans Bader on February 2, 2011 · 2 comments

in Agriculture, Energy, Environment, Ethanol, International

Ethanol subsidies helped cause the Egyptian riots, contributing to the “skyrocketing food prices” that triggered “the massive unrest now occurring in Egypt,” argues economist and syndicated columnist Larry Kudlow, in “Bernanke and Ethanol Sink Egypt.” “In 2001, only 7 percent of U.S. corn went to ethanol. By 2010, the ethanol share was 39 percent. So instead of growing wheat, our farmers are growing corn in order to cash in on ethanol subsidies.” That harmed Egypt, a major wheat importer. Another factor was the Federal Reserve’s inflationary monetary policy, whose effects have already been felt overseas: “In dollar terms, the price of wheat has soared 114 percent over the past year. Corn has surged 88 percent.” (The Fed is even printing money so that the government can buy its own bonds to facilitate record deficit spending.)

Commentators across the political spectrum worry about the effect of ethanol subsidies.  The environmentalist Jeremy Bloom has an article titled “Egypt’s Ethanol Revolution: Bad U.S.  Policy Driving Up Worldwide Food Price.” Rob Port asks, “Are Ethanol Subsidies the Root Cause of Egyptian Protests?”

As I previously noted, the rise in food prices in Egypt seems to have strengthened the anti-American Muslim Brotherhood, rather than the small pro-western reform movements in Egypt, by radicalizing the slums of Cairo, whose residents sometimes rely on relief provided by the Muslim Brotherhood (the only Egyptian political movement that provides non-governmental charitable services), and who have little connection to the Westernized middle class.

More Presidential Hopefuls Embracing Ethanolism

by Brian McGraw on February 2, 2011 · 1 comment

in Energy, Ethanol

As the Wall Street Journal noted earlier this week, potential 2012 GOP presidential nominees are making the rounds in Iowa singing the praises of renewable fuels. Newt Gingrich was a particularly egregious example. The latest to jump ship is former Senator Rick Santorum of Pennsylvania. He embraced the 9/11 national security meme, while giving us his historical take of what he deems the “radicalization” of Islam and the necessity of a smart, “independent” energy policy:

Santorum believes that domestic production of renewable liquid fuels in critical to this country’s national security. “Post 9/11, I went from someone who was skeptical at best of developing domestic sources of energy, to being a grand proponent of such things,” he said. “My pledge to you is to work with this industry to create a bigger and bigger place in the market for domestically produced ethanol and biodiesel.”

Santorum, a conservative Republican who served two terms in the U.S. House and two terms in the Senate, is considering a run for president in 2012 — as is former Speaker of the House Newt Gingrich who also spoke at the IRFA event this week.

As this blog notes, while in the Senate Rick Santorum voted against ethanol subsidies. So while Al Gore recently gave up ethanolism, we have a whole host of presidential hopefuls embracing the fuel. Consider this speech his first penance, with many more to come.

Meanwhile, the Senate Environment & Public Works Committee is putting ethanol under the microscope.

New EPA Report Confirms Biofuel Policy Harms Environment

by Brian McGraw on January 31, 2011 · 2 comments

in Energy, Ethanol

A draft EPA report released a few days ago largely confirms what we already know, that conventional biofuels produced on a large scale in the United States (corn ethanol), offer slight GHG reductions but come with a host of other, more troublesome,  problems. As the report is still a draft, the EPA has asked that it not be cited or quoted from. The report is available here. If you navigate to page 116 you can find their preliminary conclusions and recommendations. The report offers a visual summary of potential consequences or benefits from various technologies (ethanol, bio-diesel, algae-based fuels, etc.). Under corn ethanol, there are 6 listed categories of environmental effects: water quality, water quantity, soil quality, air quality, biodiversity, and invasiveness. Ethanol’s score offers a “relatively large”, “negative”, and “most certain” for 5 of the 6 categories, scoring a negligible effect on invasiveness. The ethanol groups responded immediately, attacking the EPA report:

“EPA’s failure to provide this report in any context with the environmental degradation done by fossil fuel exploitation and use is irresponsibly misleading. Energy and environmental decisions do not exist in a vacuum,” the Renewable Fuels Association, an ethanol industry trade group, wrote in a statement. “The use of biofuels, when all things are equally considered, is a far better energy choice than Canadian tar sands, oil shale, and other increasing sources of petroleum,” the group added.

and

Another ethanol trade group, Growth Energy, also attacked the EPA study. “Clearly this draft report needs a considerable amount of work. There is no consensus on several issues the report authors use as assumptions,” the group said.

Remember, the U.S. is mandating that U.S. consumers purchase corn ethanol which is harming the environment (one of its many negatives), while paying the corn ethanol industry to produce these fuels and keeping a cleaner competitor (sugarcane ethanol) from entering the country via a protective tariff. Environmental policy gone wild.

The American Subsidy is Coming to an End

by Michael Fumento on January 28, 2011 · 1 comment

in Economy, Ethanol

Two items on the front page of yesterday’s Washington Post: “Record U.S. Deficit Projected this Year” and “Two lawmakers from Michigan propose billions in incentives for buyers of electric cars.” What’s wrong with this picture? That’s the problem. We don’t see anything wrong with this picture. We want it all. But we can’t have it all.

Some people think electric cars are nice, because the pollution they generate is off-site. But as Charles Lane, a liberal, writes: “If the cars were cheaper than gas-power cars of equal performance,” that would be one thing. “But electrics are substantially more expensive than cars of greater quality.” So we have to heavily subsidize them to get them out the door. On the other hand, gasoline-powered car owners are forced to use ethanol. That’s a subsidy to the everyone involved in the ethanol industry, and again it has to be subsidized because it’s inferior to gasoline. It cuts your mileage and does essentially nothing to reduce pollution. You just can’t go around subsidizing everything.

True enough, the main problem is entitlements. Which, not incidentally, are subsidies. Social Security, Medicare, and Medicaid already absorb 40 percent of the budget and grow inexorably without anybody casting a single vote to increase them. Left untouched, they will destroy the country. But earmarks are readily controllable and yet still uncontrolled.

Our nation has a spending addiction. And our politicians don’t have the guts to tell the public that no, we can’t have it all. And so we will continue to borrow and the Fed will continue to print money. In other words, subsidize the government so it can subsidize special interests.

But as Peter Orzag, Obama’s former budget director, writes in the Financial Times, “International investors would be wise to pay close attention to fiscal trends within the U.S.”  Don’t worry, they already are. And at some point, although it will be very costly to them, they will get nervous enough to stop subsiding our subsiding.

Orzag adds, “I hope it does not ultimately require a crisis to restore fiscal sustainability at the federal level, but I fear it will.” Indeed, it will. At some point, some point soon, it will all come crashing down.

Watch.

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