Ethanol a Bumper Crop for Agribusiness, Bitter Harvest for Taxpayers
National Taxpayers Union Policy Paper 121 by Jeff Dircksen 7-20-06
Executive Summary
In 1973, Richard Nixon announced that the United States would be energy independent by 1980. Over the next three decades, a number of programs and initiatives would be launched in pursuit of that goal and then quietly eliminated when they failed to succeed. One program, ethanol, has been able to weather the changing political climate by cultivating political and popular support. Unfortunately for taxpayers, ethanol is another in a series of highly-subsidized but ineffective energy programs that are costly for consumers and are a bad “investment” of tax dollars. Rather than let ethanol put down even deeper roots, Congress should end the massive chain of subsidies that supports the fuel program and allow market forces, rather than politicians, to determine which energy technologies will survive and grow.
Ethanol imposes significant direct and indirect costs on consumers. It is more expensive to produce than gasoline, and its alcohol component prevents the fuel from being shipped as other gasoline products are, leading to higher transportation costs. Government mandates forcing drivers to purchase ethanol will lead to higher fuel bills since ethanol has a lower fuel economy than does gasoline. Also, as the price of corn rises, consumers can expect higher grocery bills as food inflation ripples through commodities markets.
Agricultural subsides lead to overproduction, which is then used as a justification for using ethanol. Since ethanol has not been economically viable, it has relied upon subsidies from the federal government as well as a number of states. The federal subsidy is currently costing taxpayers $2 billion a year. The federal government protects domestic producers from international competition by levying a significant tariff on imported ethanol.
In a further attempt to prop-up the industry, Congress inserted a renewable fuels standard into the 2005 energy bill. This requirement has the effect of mandating the use of 7.5 billion gallons of ethanol by 2012. States are also imposing their own usage requirements.
The need for massive subsidies has not kept politicians in Washington from promoting other crops as ethanol feedstocks. The most popular potential sources are sugar and biomass, or cellulosic ethanol. Sugar-based ethanol would require a subsidy of between $1 and $2 per gallon, significantly higher than the 51-cents-per-gallon that corn-based ethanol currently receives. Taxpayers have already invested $1 billion in cellulosic ethanol research since the 1980s but additional study is expected to cost $2 billion over the next few years.
While ethanol supporters continue to push the fuel as a means to energy independence, they ignore the lessons learned from three other energy alternatives that have been favored in Washington at one time or another: synthetic fuels, alternative fuel vehicles, and wind energy. As with ethanol, these programs were extremely costly and produced little return on the taxpayers’ “investment.”
Ethanol exposes taxpayers to significant long-run financial risks. It is reasonable to assume that any number of unforeseen events will force taxpayers to increase subsidies to farmers or ethanol producers. Instead, politicians should allow market forces to determine which new technologies will emerge and allow consumers to decide how to spend their own energy dollars.
ED Note: The foregoing is evidence of the efficiency of the lobbying efforts of Archer Daniels Midland and its allies, promoting ethanol, to the detriment of the national interest, despite factual evidence to the contrary—another compelling reason whyt lobbyists should be forbidden to spend more money lobbying than any other individual citizen. Sadly, Congress loves lobbyists and their big bucks, which is why our national legislature has legalized its own bribery. Which leads to the question: Who runs our country, the voters or the lobbyists? —Rense Johnson, Chairman, Citizens for Term Limits
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