subsidies

CEI Podcast for September 15, 2011: Solyndra

by Ryan Young on September 15, 2011

in Energy, Environment, Podcast

Post image for CEI Podcast for September 15, 2011: Solyndra

Have a listen here.

Myron Ebell, Director of CEI’s Center for Energy and Environment, takes a look at the brewing Solyndra scandal. Solyndra is a company that makes solar panels and recently declared bankruptcy. In 2009, the federal government gave Solyndra a $535 million loan even though its own analysts predicted the company would go bankrupt in 2011. The company’s cozy relationship with political figures, including a major political donor with an investment stake, make the loan — and its low interest rate — look rather suspicious.

More Corporate Welfare on the Way?

by Ryan Young on February 17, 2011 · 1 comment

in Bailout Watch, Economy

Politico headline from today: “Qualcomm exec calls for small-business research funding.”

Alternative headline: “Businessman asks government to give money to businesses.”

Government should not give money to private businesses, period. Businesses should compete in the marketplace, not Washington. There is a lot of money to be made by selling people things they want. Companies that do a good job of that deserve every cent they earn.

Subsidies are not earned. Nor are they given to companies make things people want. Companies already doing that don’t need handouts. In short, corporate welfare is allocated by politics instead of economics.

What Mr. Jacobs is asking for would be a boon for lobbyists and politically favored businesses. But it would be a drag on everyone else. And not only because they would be paying for the handouts. Lost innovations are part of the price. The money spent on corporate welfare is money not spent on more worthy projects.

See also Wayne Crews and I on corporate welfare in the new edition of CEI’s Agenda for Congress.

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.

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.

NPR Covers Corn Ethanol Boondoggle

by Fran Smith on December 22, 2010 · 4 comments

in Energy, Ethanol

NPR’s “Morning Edition” has finally caught on to the ethanol boondoggle. It’s doing a three-part series on ethanol that started yesterday. And it gets into some of the real issues, especially relating to corn ethanol. CEI has been pointing out that the ethanol program involves a mandate setting the amount of ethanol that must be blended with gasoline, a tax credit that goes to blenders of ethanol, and a steep tariff on imported ethanol. (See CEI video, “The Insanity of Ethanol Policy.”)

NPR got this issue right:

The question is: Does it deserve a multibillion-dollar tax credit, on top of a tariff, on top of a huge and growing mandate to use it?

NPR’s second installment brought up the food vs. fuel issue, that is, all the incentives to grow corn for ethanol production are decreasing the supply of corn available for food and for feed and driving up those costs.

Here’s what a prominent agricultural economist said to NPR:

“I don’t see why we can really justify subsidies, when all that does is raises cost of producing food,” says economics professor Bruce Babcock, of Iowa State University.

Ethanol policies increase the cost of food at least 1.5 percent, Babcock says. And the impact on meat prices is significantly greater.

It’s economics 101, he says. Ethanol plants increase the demand for corn, driving up the prices for other buyers – like livestock producers. International demand is up, too – and we’re exporting more ethanol than ever before. Many grain farmers are seeing record incomes this year.

Yet how did policymakers deal with ethanol in the lame-duck Congress? In the omnibus tax bill, they voted to extend the ethanol tax credit and the tariff on ethanol imports for one year. Ducks and pork are a tasty treat for politicians.

HT: Iain Murray

Last Call for Ethanol: Biofuel Lobby Out in Full Force

by Brian McGraw on November 17, 2010

in Energy, Ethanol

With 2011 a month and a half away, the ethanol industry is pushing full steam ahead for a renewal of the tax credit and tariff provided to support the industry. There seems to be ample opportunity to push this legislation, as it could be attached to either any energy or tax legislation that makes it way through Congress. Rent-seeking lobbyists and politicians are out in full force hoping the river of cash doesn’t run dry:

A group of senators have pressed Harry Reid over concerns that the expansion of ethanol is being constrained by “marketplace limitations.” It also implies that eventually the ethanol industry will be ready to leave the government teat, though we must ensure this isn’t done prematurely and that there is ample time for “broader discussions” on how to address the limitations facing biofuels (hint: they aren’t cost competitive).

The ethanol lobby is also out in full force, attempting to scare politicians over potential job losses. Should they get much attention to their cause, the U.S. will be seeing increased amounts of flex-fuel vehicles and billions of dollars wasted to fund ethanol pipelines and pumps around the country.

Finally, Senator Harkin (D-Iowa) threatened to oppose electric vehicles if his colleagues don’t support biofuel policies. Politics at its best. Let’s hope they can’t come to an agreement and stop the subsidies for both.

Need another reason to oppose ethanol subsidies? We are now subsidizing European drivers because our ethanol producers are receiving tax credits for ethanol exported to the EU.

Image credit: Rascaille Rabbit’s flickr photostream.

Joe Biden’s Weak Case for Government Meddling

by Ryan Young on November 10, 2010

in Economy

Joe Biden believes that government played a large role in the success of railroads in the 19th century. In this video, Don Boudreaux points out that that isn’t actually true. There were four transcontinental railroads. Three of them received subsidies. The fourth was the Great Northern Railway, founded by Canadian immigrant James J. Hill. He alone rejected any special government favors.

All three subsidized railroads went into receivership. Hill’s Great Northern Railway remained solvent, and is still in business today as BNSF Railway.

Bob Barr, [un]Principled Supporter of Ethanol

by Brian McGraw on September 24, 2010 · 6 comments

in Economy, Energy, Ethanol, Global Warming, Politics as Usual

Bob Barr, the 2008 Libertarian Party presidential nominee, had a piece in yesterday’s Huffington Post titled Extending Ethanol Tax Credit Makes Sense. It’s depressing to see such a high-profile libertarian completely sell out, and I hope he receives flack over this return to special interest politics, as just over a year ago he said “How about the still-active ethanol subsidy scam?“ Thankfully, the online comments from the left-leaning Huffington Post suggest few are buying into his spiel. If this was some ploy by the ethanol industry to gain support from free-marketers, let me suggest that will not succeed. The entire article is full of misinformation.

Barr attributes a “lack of public awareness,” and the tax credit’s apparent complexity to the trouble ethanol proponents are having in re-securing the tax credits.

I would think a lack of public awareness, if anything, would help the ethanol industry. If the public was even remotely aware of the extent to which government support for ethanol is bad policy, more people would be against it. Right now, all they’re seeing is the occasional advertisement featuring a bright yellow corn-stalk or blabber about how ethanol can’t spill in the gulf (unless we import it from Brazil, then of course the likelihood of a spill approaches 100%). I’d suggest that the ethanol industry get in touch with the sugar lobby for a few pointers on how to maintain horrendous policy.

Barr cites a 2010 CBO report, “Using Biofuel Tax Credits to Achieve Energy and Environmental Policy Goals“ and concludes that evaluating the benefits of ethanol is daunting and un-objective. Confident that no one will actually find the report and read even the summary, Barr is able to completely misconstrue the conclusions of the report (and he talks of ethanol opponents being disingenuous).

At the risk of repeating myself for the 10th time, let’s look at relevant quotes from the CBO report:

From the conclusions section of their summary:

The costs to taxpayers of using a biofuel to reduce gasoline consumption by one gallon are $1.78 for ethanol made from corn and $3.00 for cellulosic ethanol.

Taxpayers spend $1.78 to reduce consumption of one gallon of gasoline; approximately 66% of current gas prices. Sounds like a great deal to me.

Similarly, the costs to taxpayers of reducing greenhouse gas emissions through the biofuel tax credits vary by fuel: about $750 per metric ton of CO2e (that is, per metric ton of greenhouse gases measured in terms of an equivalent amount of carbon dioxide) for ethanol, about $275 per metric ton of CO2e for cellulosic ethanol, and about $300 per metric ton of CO2e for biodiesel. Those estimates do not reflect any emissions of carbon dioxide that occur when the production of biofuels causes forests or grasslands to be converted to farmland for growing the fuels’ feedstocks. If those emissions were taken into account, such changes in land use would raise the cost of reducing emissions and change the relative costs of reducing emissions through the use of different biofuels—in some cases, by a substantial amount.

Not cost effective at lowering emissions. The Waxman Markley cap-and-trade bill had permits set to be traded at $32. Equivalent carbon permits in the EU are selling for approximately $20. This means that other industries are capable of reducing their GHG emissions at a cost of 23-27 times less.

“In the future, the scheduled rise in mandated volumes would require the production of biofuels in amounts that are probably beyond what the market would produce even if the effects of the tax credits were included. To the extent that the mandates determine levels of production in the future, the biofuel tax credits would no longer be increasing production, but they would still be reducing the costs borne by producers and consumers of biofuels and shifting some of those costs to taxpayers.”

Given the Renewable Fuels Standard, the tax credit doesn’t do much other than secure (little) excess profit for the ethanol industry at taxpayer expense.

Continuing on, Barr discusses subsidies for the oil-companies and job losses. The oil company subsidies are mostly in the form of tax write-offs available to a wide sector of U.S. industry (good summary here) rather than just the oil companies. To the extent to which the oil companies do receive subsidies, they are larger on an absolute level but are dwarfed by all sectors of “renewable energy” (let us not forget that the ethanol industry relies on fossil fuels to produce ethanol) on a per unit of energy produced basis.

Job losses of over 100,000 are a complete falsehood perpetuated by the ethanol industry. See a study here; which explains that job losses are likely to be under 1,000 because of the RFS mandating ethanol production.

Finally, Barr requests a fair and comprehensive debate including the “philosophical pros and cons” of federal tax policy. Then sneaks in the fact that despite the VEETC the ethanol industry is a net contributor to tax revenue. This is probably true, though it ignores the numerous state level subsidies and the years and year of subsidies when net tax revenues were likely negative. Furthermore, the net tax revenue of the ethanol industry would likely be higher under a scenario where the U.S. taxpayers didn’t write a $6 billion check each year supporting them.

Cognitive dissonance is an uncomfortable feeling caused by holding conflicting ideas simultaneously. Let’s hope its not hurting Mr. Barr too much this week as he recovers from a disgraceful opinion piece.

Unintended Consequences of Unemployment Benefits

by Ryan Young on July 8, 2010 · 3 comments

in Economy, Employment

This letter of mine ran in today’s New York Times in response to Paul Krugman’s July 4 column.

To the Editor:

Paul Krugman is at a loss to explain why some people oppose extending unemployment benefits. One reason people hold such an opinion is that when government subsidizes something, there tends to be more of it.

The more government subsidizes unemployment, the more people will indulge in it for longer periods of time.

Ryan Young
Washington, July 6, 2010

The writer is a journalism fellow at the Competitive Enterprise Institute.

D.C. Rail Fetishists Propose “Free” Trolleys

by Marc Scribner on May 6, 2010

in Economy, Mobility, Politics as Usual, Regulation

If you believe the “city of northern charm and southern efficiency” is geared solely toward imposing stupid, expensive directives on the rest of the country, think again–local D.C. government makes the feds look reasonable, measured, and intelligent in comparison. I mean, Marion Barry still serves on the city council.

Washington is also a town home to more glassy-eyed rail fanatics per capita than any other. The Washington Metro, the rail transit system that was presumably designed to serve wealthy suburban condo owners, is a notorious fiscal black hole. But the Metro system is controlled by the WMATA, a multi-jurisdictional regional transit authority, and not the city itself. Not wanting to be outdone by a bunch of Virginia and Maryland upstarts, D.C. decided to show WMATA a thing or two about absurdly wasteful transit spending–reintroducing streetcars in the District.

You remember streetcars, right? The antiquated 19th century transit technology that was supposedly murdered by the evil auto industry in the 1960s? Well, it’s been resurrected thanks to the persistent efforts of greens, railfans, and the bow-tie-wearing, criminal-employing Councilman Jim “The people of the District of Columbia want their trolleys back” Graham. To make things worse, officials are now seriously talking about forgoing fare collection on parts of the “$1.5 billion” (if only it would end up being this cheap when all is said and overrun) streetcar system:

“It is certainly possible that in certain areas of the city it would be free,” DDOT Director Gabe Klein tells WTOP.

“And we like that, because the point of this is to stimulate growth and move people between neighborhoods. So we are going to look at a structure where people feel comfortable hopping on and off, maybe many times in an hour.”

D.C. officials have closely studied the streetcar system in Portland, Ore. as a model for what to do in the nation’s capital. In Portland, riders who take trips in the “fareless square” do not have to pay for trips.

“In the downtown area, they make it free,” says Klein. “People literally hop on and hop off, sometimes at every stop. It’s great because it feels more like a people mover, than it does a bus or a streetcar.”

Keeping the cost low would encourage people to use the streetcars. [Emphasis added.]

Mr. Klein is certainly on the right track when he suggests that people might take advantage of a service more if they aren’t charged for use, but he should look up the definition of the word “free.” Something is not costless just because you’re robbing Peter to pay Paul. But Klein really goes off the rails when he proclaims Portland, Oregon’s “silent but deadly” MAX transit system as something the District should be watching and learning from.

Oregonian Randal O’Toole, economist and noted transit scholar, throws cold water on the notion that the Portland model is something to emulate:

Portland’s story of spending $90 million on a streetcar line to get $2.3 billion of development, or $57 million on an aerial tram to get $1 billion of development, sounds attractive to officials from other cities. It might not sound so attractive if Portland admitted that it really had to spend $665 million, in addition to the cost of the streetcar line and tram, not to mention 10-year tax waivers on at least $100 million of development, to get that $2.3 billion worth of development.

Streetcars might sound “fun” or “cool,” but there are two very important reasons why they were scrapped 50 years ago: streetcar lines are much more expensive to operate and maintain compared to buses, and they’re unpopular (not in the “do you like the idea of trolleys?” sense, but in terms of actual ridership). Not to mention the obvious traffic safety problems with nearly-unstoppable, 40-ton fixed-line vehicles sharing the roads with automobiles and cyclists.

One good thing to come out of this flurry of unrestrained public transportation spending is that the District Department of Transportation put online a database where you can see when and how the city is wasting taxpayer dollars on transit boondoggles.

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