The Ethanol Scam
Wednesday, August 1st, 2007 1:00 pm by Neal |
| Politicians are high on turning corn into fuel – but ethanol not only hurts the environment, it’s also one of America’s biggest political boondoggles. Illustration by Victor Juhasz. (Source) |
(Hat tip: Larry Kudlow, the Corner.)
Rolling Stone magazine has an excellent article on the political boondoggle that is Ethanol. Check out “Ethanol Scam: Ethanol Hurts the Environment And Is One of America’s Biggest Political Boondoggles:”
Ethanol, of course, is nothing new. American refiners will produce nearly 6 billion gallons of corn ethanol this year, mostly for use as a gasoline additive to make engines burn cleaner. But in June, the Senate all but announced that America’s future is going to be powered by biofuels, mandating the production of 36 billion gallons of ethanol by 2022. According to ethanol boosters, this is the beginning of a much larger revolution that could entirely replace our 21-million-barrel-a-day oil addiction. Midwest farmers will get rich, the air will be cleaner, the planet will be cooler, and, best of all, we can tell those greedy sheiks to fuck off. As the king of ethanol hype, Sen. Chuck Grassley of Iowa, put it recently, “Everything about ethanol is good, good, good.”
This is not just hype — it’s dangerous, delusional bullshit. Ethanol doesn’t burn cleaner than gasoline, nor is it cheaper. Our current ethanol production represents only 3.5 percent of our gasoline consumption — yet it consumes twenty percent of the entire U.S. corn crop, causing the price of corn to double in the last two years and raising the threat of hunger in the Third World. And the increasing acreage devoted to corn for ethanol means less land for other staple crops, giving farmers in South America an incentive to carve fields out of tropical forests that help to cool the planet and stave off global warming.
So why bother? Because the whole point of corn ethanol is not to solve America’s energy crisis, but to generate one of the great political boondoggles of our time. Corn is already the most subsidized crop in America, raking in a total of $51 billion in federal handouts between 1995 and 2005 — twice as much as wheat subsidies and four times as much as soybeans. Ethanol itself is propped up by hefty subsidies, including a fifty-one-cent-per-gallon tax allowance for refiners. And a study by the International Institute for Sustainable Development found that ethanol subsidies amount to as much as $1.38 per gallon — about half of ethanol’s wholesale market price.
…The ethanol boondoggle is largely a tribute to the political muscle of a single company: agribusiness giant Archer Daniels Midland. In the 1970s, looking for new ways to profit from corn, ADM began pushing ethanol as a fuel additive. By the early 1980s, ADM was producing 175 million gallons of ethanol a year. The company’s then-chairman, Dwayne Andreas, struck up a close relationship with Sen. Bob Dole of Kansas, a.k.a. “Senator Ethanol.” During the 1992 election, ADM gave $1 million to Dole and his friends in the GOP (compared with $455,000 to the Democrats). In return, Dole helped the company secure billions of dollars in subsidies and tax breaks. In 1995, the conservative Cato Institute, estimating that nearly half of ADM’s profits came from products either subsidized or protected by the federal government, called the company “the most prominent recipient of corporate welfare in recent U.S. history.”
Today, ADM is the leading producer of ethanol, supplying more than 1 billion gallons of the fuel additive last year. Ethanol is propped up by more than 200 tax breaks and subsidies worth at least $5.5 billion a year. And ADM continues to give back: Since 2000, the company has contributed $3.7 million to state and federal politicians.
This article is right on target to lay this at the feet of ADM. That company has also benefited from tariffs on sugar which is why US food manufacturers use corn syrup as the ubiquitous sweetener. There is a growing pile of evidence that corn syrup is making Americans fat while ADM profits. We here at southchild are unabashed Capitalists; however, there’s nothing capitalistic about tariffs on sugar and taxpayer subsidies to giant agri-business.
Mark Perry at Carpe Diem has this graph and analysis of AMD stock:
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| MP: The chart above shows the 5-year return on ADM stock (+200%, top blue line) vs. the S&P500 (+60%, bottom red line). (Source) |
Another excellent article on this topic is The Many Myths of Ethanol by John Stossel. He makes some great points:
Clinton, Romney, Barack Obama and John Edwards not only believe ethanol is the elixir that will give us cheap energy, end our dependence on Middle East oil sheiks, and reverse global warming, they also want you and me — as taxpayers — to subsidize it.
When everyone in politics jumps on a bandwagon like ethanol, I start to wonder if there’s something wrong with it. And there is. Except for that fact that ethanol comes from corn, nothing you’re told about it is true. As the Cato Institute’s energy expert Jerry Taylor said on a recent “Myths” edition of “20/20,” the case for ethanol is based on a baker’s dozen myths.
A simple question first. If ethanol’s so good, why does it need government subsidies? Shouldn’t producers be eager to make it, knowing that thrilled consumers will reward them with profits?
But consumers won’t reward them, because without subsidies, ethanol would cost much more than gasoline.
The claim that using ethanol will save energy is another myth. Studies show that the amount of energy ethanol produces and the amount needed to make it are roughly the same. “It takes a lot of fossil fuels to make the fertilizer, to run the tractor, to build the silo, to get that corn to a processing plant, to run the processing plant,” Taylor says.
And because ethanol degrades, it can’t be moved in pipelines the way that gasoline is. So many more big, polluting trucks will be needed to haul it.
More bad news: The increased push for ethanol has already led to a sharp increase in corn growing — which means much more land must be plowed. That means much more fertilizer, more water used on farms and more pesticides. …
OK, but it will cut down on air pollution, right? Wrong again. Studies indicate that the standard mixture of 90 percent ethanol and 10 percent gasoline pollutes worse than gasoline.
Well, then, the ethanol champs must be right when they say it will reduce greenhouse gases and reverse global warming.
Nope. “Virtually all studies show that the greenhouse gases associated with ethanol are about the same as those associated with conventional gasoline once we examine the entire life cycle of the two fuels,” Taylor says.
Surely, ethanol must be good for something. And here we finally have a fact. It is good for something — or at least someone: corn farmers and processors of ethanol, such as Archer Daniels Midland, the big food processor known for its savvy at getting subsidies out of the taxpayers.