WSJ Revisits Ethanol

The Wall Street Journal interviewed Secretary of Agriculture Tom Vilsack who suggested the ethanol industry might be able to wean itself off of federal subsidies. Not too quickly, obviously.

The WSJ took this as a positive sign:

Still, Mr. Vilsack may be the first Agriculture Secretary in generations to concede that ethanol subsidies are not immutable. That’s progress.

I do not share their view that this is progress. As they admit, there’s a chance the industry will receive new forms of support without ditching the old. Obama will still have a potentially tough re-election in 2012. Virtually all of the potential Republican candidates have praised the industry, and Obama will certainly acquiesce and do the same.

Furthermore, as they note, Vilsack praised the idea of building infrastructure or providing incentives for E85. These will be equally damaging in that they will ensure the U.S. continues to produce much more ethanol than the market would demand.

Imagine a scenario in 2016 when cellulosic ethanol is still “just a few years away” from being commercialized and the DoE is tired of the embarrassment that comes along with lowering a “mandate” by 95 percent. The corn ethanol industry will scream about how their technology is already proven and lobby for the RFS2 to be amended such that starch based ethanol can fulfill the cellulosic mandate.

Farmland will continue to be diverted towards growing corn and the problems will reverberate throughout the global economy. This problem will only worsen itself if gasoline prices continue to rise because the voters will want politicians to “do something” especially if it involves producing domestic fuel, no matter the cost, at home.

The ethanol industry took a beating last year in that they expected a five-year extension of the VEETC no questions asked, and got only a one-year extension. And despite the recent efforts to limit the industry via stopping E15 production, they still wield a lot of power on the Hill.