Ethanol in The Wall Street Journal

The editorial staff at The Wall Street Journal have not been kind to ethanol over the past months. They ran two editorials (one in July — “Survival of the Fattest“, one last week — “The Ethanol Bailout“) criticizing U.S. biofuel policy.

The most recent editorial sparked a letter to the editor from Agriculture Secretary Tom Vilsack. The letter reiterates many of the talking points Vilsack made in his recent address. The title, “Ethanol is a Step to More Biofuels,” almost implicitly acknowledges that corn ethanol itself is not the tell-tale solution the ethanol industry markets it as. Though his letter isn’t as bad as much of the propaganda put forth by the industry recently, his ending comment is misleading:

Don’t forget, the petroleum industry receives billions of dollars in tax breaks each year from the federal government.

I don’t think anyone has forgotten that. But two wrongs don’t make a right. Furthermore, a significant portion of the tax breaks received by the petroleum industry are part of a larger portion of the tax code that is not industry specific. You can credibly argue about the inefficiencies created by the U.S. tax code, but you can’t demonize the petroleum industry for taking advantage of credits available to a large portion of businesses in the U.S. (though there are also petroleum specific subsidies).

Additionally, as summarized (.pdf) by the EIA in 2007, while petroleum subsidies look BIG, on a BTU (subsidy per unit of energy provided) basis they’re miniscule in comparison to biofuel subsidies. The report calculates subsidies at $0.03 per million BTU’s for natural gas/petroleum compared to $5.72 per million BTU’s for ethanol/biofuels. Biofuel subsidies are 190 times larger than natural gas/petroleum subsidies on a per unit of energy basis (not sure why they couldn’t separate these out).

And then onto the commentators. Commentators on the Internet are generally known for their thoughtfulness and accuracy. Just kidding. But the WSJ letter includes comments from real live employee’s of the ethanol industry.

Ben Butterfield writes:

I work for Growth Energy, the coalition of ethanol supporters that filed the E15 waiver with the EPA. I agree with Secretary Vilsack that the EPA’s decision is the right step in the right direction. Moving to E15 is the first crack the blend wall – that artificial limit on the ethanol market. It is the one step we can take today to reduce our dependence on foreign oil, create jobs here in the US and improve our environment.

These types of comments are frustrating because they’re so incredibly misleading. The ethanol industry as a whole relies on government mandated biofuel production. Are they being “artificially limited” by restrictions on the amount of ethanol that can be blended into fuel? In a way, yes. But they also artificially exist, and will artificially grow, because of the EISA mandates on biofuel production. So they aren’t allowed to complain about all these unfair restrictions the government has placed on their industry. I’m willing to bet they wouldn’t trade unfettered market access (via tossing out the EPA and allowing fuel stations to sell ethanol blends as they desire) in exchange for killing the Renewable Fuel Standard.

Another, from Scott Miller — a bio-blogger:

Growth Energy (and their chief spokesman, Gen. Wesley Clark) champions the Fueling Freedom Plan ( see ) which promotes the phasing out of ethanol subsidies to invest in the build-out of flexible fuel infrastructure – primarily the installation of blender pumps and ethanol pipelines – to provide a level playing field for market entry. Part of the problem of market entry of ethanol of all types has been that there are few blender pumps, so people have little reason to buy flexible fuel vehicles (FFVs). Conversely, there is little reason to install pumps if there are no FFVs

This isn’t the “phasing out of ethanol subsidies.” It’s the changing of ethanol subsidies from tax credits on production to subsidizing infrastructure and creating yet another artificial market by mandating FFVs. How can anyone take the “level playing field” stuff seriously? The real problem for the market entry of ethanol is that there isn’t any real demand for it because it isn’t consistently price competitive with gasoline. If oil prices rise back to previous highs ethanol will be price competitive again, and individuals will demand FFVs on their own. Though don’t forget the price of corn ethanol is also volatile and heavily tied to the price of corn and natural gas.

Miller was offended that the integrity of the ethanol industry was called into question. I’m not here to assault their integrity, maybe they genuinely believe ethanol is the fuel of the future. But its fair to attack their actions when they’re benefiting from taxpayer money and are fighting like hell to keep Brazilian sugarcane ethanol from reaching the United States.