Let ethanol have a go in a free market

  • Article by: JASON LEWIS
  • Updated: June 25, 2011 - 10:09 PM

The way it's been handled so far? Not free in any sense of the word.

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Ethanol plant

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When the gasohol governor marches into Iowa and says that ethanol's subsidy days are numbered because "we simply can't afford them," you know the times they are a-changin'.

Tim Pawlenty's courage may have been borne of necessity, but nonetheless, it is in stark contrast to Newt Gingrich, who went to Des Moines and got on bended knee in front of the Renewable Fuels Association.

Or for that matter, Al Gore, who not long ago admitted that the only reason he supported ethanol in Iowa was to secure the presidency. Profiles in courage they're not.

But now, a bipartisan majority in the U.S. Senate has voted to end more than three decades of taxpayer support for the biofuel as a potential component of a deficit-reduction deal. Even former President Bill Clinton has warned of "food riots" as a result of diverting nearly 40 percent of the nation's corn crop to ethanol.

The USDA reports that America's corn reserves have hit their lowest level since the mid-1990s, resulting in a doubling of the price of corn from just a few years ago. Indeed, corn futures now hover around $7 per bushel.

A few stakeholders may applaud the rising prices, but there's a difference between genuine prosperity and a government-induced commodity and agricultural land bubble that threatens to burst just as soon as the subsidies stop.

In the meantime, consumers are paying for this feel-good energy policy, as everything from the cost of groceries to livestock feed is heading north.

The issue should be of special importance to the GOP. The Tea Party types who swept Republicans into power in 2010 are now demanding a return to real markets and a departure from the crony capitalism dominated by government favor.

Besides, ethanol subsidies aren't going to family farms, they're going to large corporate ones and to those political players who actually refine the stuff, like Archer Daniels Midland.

And the costs are huge. The Congressional Budget Office reports that the Volumetric Ethanol Excise Tax Credit of 45 cents per gallon cost the Treasury $7.6 billion in 2010 alone. All told, federal taxpayers have spent more than $41.2 billion on subsidies and tax credits for biofuels since 1980.

The Minnesota taxpayer has been especially generous. According to figures from the state Department of Agriculture, the state has doled out $376 million to ethanol producers over the past 25 years.

But do the subsidies not seem misplaced given the fact that Minnesota law already requires a 20 percent ethanol blend in gasoline by 2013? Or that the federal Environmental Protection Agency is set to raise the limit of ethanol in gas from 10 percent to 15 percent nationwide?

Nevertheless, the special interests are now demanding that gas stations convert pumps to the latest flex-fuel fad, E85. Yet data from the Department of Energy reveal that vehicles running on 85 percent ethanol are roughly 25 percent to 35 percent less fuel-efficient than those on straight gasoline.

Popular Mechanics, for example, reports that it takes 450 pounds of corn to fill the tank of an SUV with ethanol. Consequently, the House of Representatives voted 283 to 128 earlier this month to deny funding for the retrofitting of fuel pumps and tanks for higher concentrations of ethanol.

For years, support for ethanol has been the third rail of Midwestern farm-belt politics. But try as they might, politicians can't repeal the immutable forces of the marketplace.

Because of the tax incentives, there's actually a glut on the market, and a number of ethanol plants are being shuttered. All the while, oil imports have steadily been increasing due to the myriad products other than gasoline made from a barrel of crude.

Minnesota farmers don't need protective tariffs and taxpayer subsidies.

What they need are open markets, fewer regulations and a tax code that doesn't get in the way of passing on the family farm to the next generation. If ethanol can survive without government support, great; if it can't, it shouldn't have been propped up in the first place.

Jason Lewis is a nationally syndicated talk-show host based in Minneapolis-St. Paul and is the author of "Power Divided is Power Checked: The Argument for States' Rights" from Bascom Hill Publishing. He can be heard locally from 5 to 8 p.m. weeknights on KTLK Radio, 100.3-FM.

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