It's Not Corny, It's Government Policy

Corn = Cash!

Why I am against any government favoring one form of energy production (solar, wind, coal, etc…) over the other can be explained by the enthanol debacle.  It sounds like a good idea… reduce American oil imports by using something we have in great abundance – the ability to grow corn – and blend it with gasoline in order to extend our fuel supplies.  The U.S. will use less oil, farmers will have a crop they can sell, and unfriendly regimes that sell us their black gold will get less of our dollars.

That was the promise (or should I say the hot air) about ethanol.  Let’s examine what happens when the U.S. government throws taxpayer dollars behind such an idea.

According to a recent article in the Wall Street Journal:

Back in 2005, Congress passed a highway bill. In its wisdom, it created a subsidy that gave some entities a 50-cents-a-gallon tax credit for blending “alternative” fuels with traditional fossil fuels. The law restricted which businesses could apply and limited the credit to use of fuel in motor vehicles.

Not long after, some members of Congress got to wondering if they couldn’t tweak this credit in a way that would benefit specific home-state industries. In 2007, Congress expanded the types of alternative fuels that counted for the credit, while also allowing “non-mobile” entities to apply. This meant that Alaskan fish-processing facilities, for instance, which run their boilers off fish oil, might now also claim the credit.

What Congress apparently didn’t consider was every other industry that might qualify. Turns out the paper industry has long used something called the “kraft” process to make paper. One byproduct is a sludge called “black liquor,” which the industry has used for decades to fuel its plants. Black liquor is cost-effective, makes plants nearly self-sufficient, and, most importantly (at least for this story), definitely falls under Congress’s definition of an “alternative fuel.”

What paper industries did was use this law (which Congress passed and President George W. Bush signed into law) to apply for credits adding up, depending upon who you listen to, from $3 billion to $6 billion of taxpayer dollars!  Also, another unintended result of this entire program is that other countries (namely Canada) say that this money is, in effect, an unfair subsidy that provides American paper companies with an advantage when compared to their Canadian counterparts.

Pony up U.S. taxpayer.

Not only are these industries sucking down taxpayer dollars but the diversion of cropland for corn to be used for ethanol has raised food prices as more and more corn has been diverted for fuel production instead of for human and animal consumption.  As for consumers, ethanol holds less energy per gallon than gasoline does so cars fueled with E85 (85% gasoline, 15% enthanol) do not travel as far and need to be refueled more often.

These ethanol subsidies cost U.S. taxpayers $8 billion in 2008.  And, it has turned out, all of the money that was spent building ethanol refineries and infrastructure is going to waste:

Corn ethanol plants “are shutting down virtually every week.” An alternative energy trade group says at least 10 of the nation’s 150 ethanol firms have closed some 24 plants in three months, with a dozen other companies in distress.

Little more than a year after the Democratic Congress passed legislation launching a massive national effort to convert farm crops and agricultural wastes into auto fuel, it’s become clear that the production deadlines aimed at greenifying your local gas station can’t and won’t be met.

The many investors who were tripping all over themselves to finance biofuel plants last year are finding that going green can mean losing lots of green.

All of this comes on the heels of President Obama’s desire to tax CO2 emissions, which the EPA just classified as a pollutant, the first step on the way to regulating it, which could cost as much as $2 trillion dollars and place heavy burdens on the poor, their employers, and make U.S. industry non-competitive because these taxes do not exist in countries like China and Japan.

You’d think that if the EPA said CO2 was a pollutant that all of the “money” raised would go towards “fighting” it, right?  Wrong… it will be spent on health care reform!

Governments do not belong in “picking winners” in any area whether it be cars, energy, or sofa beds.  One look at the unintended consequences of ethanol and “alternative” energy production should give everybody food for thought.

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Related posts:

1. Getting Energized
2. Comrade, Your Government is Ready