Ethanol Subsidies Should Be Eliminated

Give Ryland Utlaut points for audacity in his commentary in favor of the Renewable Fuel Standard (RFS). Seeing an ethanol producer rail against “special interests” is like watching members of the Kardashian clan object to reality television. The ethanol industry is the ultimate “special interest.” The industry exists only because of government mandates and subsidies; there is no real market demand for its product.

Unfortunately for the ethanol industry, everything it claims it can do is already being accomplished by improved natural gas production, commonly called “shale gas,” in the United States. Increasing American energy output? Check. Reducing dependence on foreign oil? Check. Lowering energy costs for consumers? Check. Reducing CO2 emissions to improve our environment? Check. American energy output currently is the highest it has been for decades and our dependence on foreign oil is the lowest it has been for decades. We have shale gas extraction to thank for this, not biofuels such as ethanol that have long had political muscle but no market appeal.

Fortunately for consumers and taxpayers, these amazing changes to our energy industry are being accomplished with limited government involvement. The federal government is not even the primary regulator of natural gas, states are. Natural gas is subsidized to a lesser degree than many other types of energy, especially ethanol. According to the U.S. Energy Information Agency (EIA), in 2010, natural gas produced 80 percent of the non-electricity energy in the country, and received 21 percent of the subsidies. Biofuels, including ethanol, produced just 11 percent of the non-electricity energy in the country, but received a whopping 73 percent of the subsidies.

How has America benefitted from those huge subsidies ($6.64 billion in fiscal year 2010, the most of any type of energy)? Our largest “benefit” has been a major diversion of corn from food — where it was useful — to gas — where it is not. This has helped lead to increased food prices. Nice benefit – higher prices across the entire food chain, from eggs and bread to chicken and steak, and almost all dairy products, costing American consumers billions of dollars.

Most ethanol consumed in Missouri is a result of our state’s deplorable E10 mandate that all gasoline sold includes 10 percent ethanol. However, in some places, E85 gasoline is sold at gas stations as a consumer option. In those places, E85 competes with traditional gasoline on price and quality, like any product in a market economy should. E85 competition should be the model for the industry, not continued reliance upon federal and state mandates and subsidies. Regrettably, organizations such as the Coalition for E85 remain committed to government involvement as a staple of the industry.

Utlaut quotes a number of impressive-sounding totals for ethanol investment in Missouri. Whatever the totals are, they do not hide the fact that without government support, the industry would shrink dramatically – and almost certainly collapse. That may sound unfortunate, but is it really preferable to continue taking tax dollars from everyone else to prop it up? The simple fact is there is no sizable market demand for ethanol.

The growth of the ethanol industry in Missouri and the entire country is tied to government. We have a state mandate that ethanol be in our gasoline. We use state tax dollars to support its production. We have federal mandates that a certain amount of ethanol and other renewable fuels be sold (the RFS), whether people want it or not. We have all of these subsidies despite the fact that shale gas is already moving our energy industry forward and succeeding in ways ethanol can only dream (or lobby) about.

The Renewable Fuel Standard was unnecessary even before shale gas and other improvements rendered it meaningless. Once again, the free market is solving problems on its own. The ethanol industry is like your least favorite uncle at Christmas who borrows money from your parents to buy you a crummy gift you do not want or need and then expects you to fawn all over him. No thanks, we would just like our money back. The RFS needs to go.

David Stokes is a policy analyst at the Show-Me Institute, which promotes market solutions for Missouri public policy.