Time to Shut Down the Ethanol Racket

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by Dan Mitchell

When I wrote yesterday that Trump’s overall rating on economic policy was “bad,” a few people wrote to complain.

I did acknowledge in the column that it may be too soon to give the current president a grade, but it’s not looking good. He not only has a bad record on big issues such as spending and trade, but he also is prone to cronyist policies in other areas.

Such as goodies for the coal industry.

Such as goodies for the housing lobby.

And goodies for corn growers, which is the topic of today’s column.

But we’re not going to look at traditional agriculture subsidies (which are awful in their own right). Instead we’re going to focus on government handouts that bribe corn growers and others into turning crops into fuel.

This is a policy that’s bad for taxpayers, bad for consumers, bad for the environment, and probably bad for motherhood and apple pie.

The Competitive Enterprise Institute wrote last year about this boondoggle.

President Trump has again sought changes to the Renewable Fuel Standard (RFS)… The previous reform effort granted ethanol producers and corn growers their request to raise the amount of ethanol allowed year-round in gasoline from 10 to 15 percent (E-15)… But this did not create peace. Pro-RFS forces soon demanded both E-15 and fewer small refinery waivers. Now, the administration has announced that, while it will still grant small refinery exemptions, it will reallocate the waived amounts to non-exempt refineries and thus preserve the 15 billion gallon maximum set out in the law. It will also ease the labelling requirements for gas stations selling E-15. …Lost in the debate between the biofuels industry and the petroleum industry is what the RFS means for consumers. Gasoline prices are relatively low right now, but not because of the RFS. And we are always one bad corn crop away from an ethanol-induced price spike. …The proposed changes can only add to the upward pressure on pump prices.

The year before, the Independent Institute criticized Trump’s approach.

…instead of terminating the Renewable Fuel Standard (RFS) — which mandates a sharp increase in renewable fuel consumption by 2022 — the Trump administration has doubled-down on biofuels. President Trump has said that he supports ramping up ethanol production even further by allowing gasoline containing 15 percent ethanol to be sold year-round. Doing so would expand ethanol use and encourage the EPA to ratchet that percentage up in subsequent years. …a comprehensive meta-analysis in the American Journal of Agricultural Economics found the greenhouse gas benefits of ethanol to be almost zero. For other pollutants like nitrogen oxides (NOx) and ozone, ethanol actually is worse than gasoline. Because 40 percent of the nation’s corn crop is used in the production of biofuels, ethanol production also raises food costs. As a result, consumers pay higher prices for beef, milk, poultry and pork, among other items. …Because the RFS moved corn growing to areas that require more water, more fertilizer, and more acreage, prairies and other wild-lands are disappearing, soil is eroding, groundwater is being depleted, and ocean dead zones are expanding. …If ethanol truly were a good substitute for gasoline, no E10 or E15 mandate would be necessary.

Ironically, Trump’s misguided handouts aren’t necessarily buying him any friends.

As reported by Bloomberg, one of the big recipients says it may diversify away from ethanol unless subsidies are increased.

American ethanol makers have for years been reliant on a government policy that mandates biofuel use. But industry stalwart Green Plains Inc. wants to break away from that dependence… The Omaha, Nebraska-based company has lost faith that the ethanol industry will get the support it needs from parts of the Trump administration, said Chief Executive officer Todd Becker. …“We are going to spend half a billion dollars transforming this company to be not dependent on government policy,” Becker said in an interview. The EPA is “no friend of ethanol. They’ve done everything they can to destroy the market for us. They’ve done everything they can to destroy this industry.” …The U.S. ethanol industry was born out of government support. In the 1970s, President Jimmy Carter asked agribusiness leaders to make biofuels… The industry got another boost in 2007, when the Renewable Fuels Standard expanded the mandate to blend ethanol into gasoline.

This takes chutzpah. Ethanol arguably could be the most subsidized product in the United States, yet beneficiaries say they may exit the industry without ever-increasing handouts.

I’m not sure how to react to this supposed this supposed threat.

  • Should I say, “Here’s your hat, what’s your hurry”?
  • Should I channel Clint Eastwood and say, “Go ahead, make my day”?
  • Or should I simply say, “Don’t let the door hit you on the way out”?

The bottom line is that ethanol handout were bad policy when they were first created and they are bad policy today. These handouts are misguided when Democrats are in charge, and they’re misguided when Republicans are in charge.

I’d like Trump to switch his position because of a newfound appreciation for free enterprise, but I’ll be happy if he shifts in the right direction simply because he doesn’t appreciate greedy complaints from the ethanol industry.

P.S. Trump isn’t the only Republican who is bad on this issue. Indeed, the GOPers who support free markets – such as Rand Paul and Ted Cruz – may be in the minority of the Party.

by Dan Mitchell
Daniel J. Mitchell is a public policy economist in Washington. He’s been a Senior Fellow at the Cato Institute, a Senior Fellow at the Heritage Foundation, an economist for Senator Bob Packwood and the Senate Finance Committee, and a Director of Tax and Budget Policy at Citizens for a Sound Economy. His articles can be found in such publications as the Wall Street Journal, New York Times, Investor’s Business Daily, and Washington Times. Mitchell holds bachelor’s and master’s degrees in economics from the University of Georgia and a Ph.D. in economics from George Mason University. Original article can be viewed here.