Orwell’s Ethanol Farm

Perspectives blog
Ken Cohen - Jun. 17, 2015

In a recent letter to The Wall Street Journal, the ethanol lobby’s top official objected to this editorial about the Renewable Fuel Standard (RFS) – in the course of doing so he made a number of flatly incorrect assertions about the oil and gas industry.

I’d like to set the record straight.

Point 1.
According to the letter from the head of the Renewable Fuels Association, the RFS:

“…assur[es] consumer choice at the pump by annually increasing the amount of ethanol, biodiesel, and other biofuels.”

It sounds good, but it’s wrong. The RFS doesn’t expand consumer choice. In fact, the sentence should really read that the RFS denies consumer choice at the pump by annually increasing the amount of ethanol, biodiesel, and other biofuels that consumers are forced to purchase.

Point 2.
The letter to the editor further notes:

“…taxpayer largesse that continues to be lavished on the petroleum industry. Ethanol is not subsidized. Oil is. The most profitable industry in the history of the world continues to rely on tax dollars to fuel its investments while resisting any modest effort to allow access to the consumer for any alternative fuel.”

Again, it is misleading to claim that ethanol is not subsidized. For decades ethanol producers received a tax credit of 45 cents for every gallon they produced. This subsidy cost taxpayers $6 billion in 2011 alone and only ceased when Congress wisely let the credit expire that year.

But ethanol is still heavily supported by the federal government in the form of the Renewable Fuel Standard, which literally mandates that refiners purchase a government-specified amount of the ethanol industry’s product and blend it in to the gasoline that consumers buy.

This mandate props up an industry that otherwise would hardly exist on its own. So instead of diverting taxpayer money directly from the Treasury to ethanol producers, Congress now merely forces refiners (and their customers) to make the payments themselves. Ethanol has a guaranteed income stream, thanks to lawmakers in Washington. It’s a subsidy no matter which way you look at it.

As for the claim that the petroleum industry is subsidized and uses taxpayer dollars to finance our investments, here is an idea – let’s cancel the Renewable Fuel Standard and give the ethanol industry the same tax treatment that the oil and gas industry receives.  If this “lavish taxpayer largesse” is enough to prop up the oil and gas industry, then surely it would be sufficient to keep the ethanol industry going as well.

The fact is the tax burden on the oil and gas industry is dramatically higher than for any other energy source.  Unlike other energy sources, the oil and gas industry actually pays taxes, royalties and other fees (over $85 million dollars a day to the federal government alone, according to API).

The attack on the oil and gas industries’ tax provisions is a red herring meant to deflect attention away from the fact that the ethanol industry could hardly survive without massive government mandates or subsidies.

ExxonMobil will invest $34 billion this year on finding and producing new sources of energy to fuel economic progress. The money for that investment comes from what we earn by offering a product that consumers around the world plainly want and need. It does not come from subsidies or Mandates from Washington or any other level of government.

So let’s review. The ethanol industry gets special carve-outs specifically crafted for it by Washington. The oil industry gets treated, more or less, like everyone else and competes in a dynamic global marketplace. So who is the beneficiary of government largesse?

Point 3.
The Renewable Fuels Association also claimed in the letter:

“Ethanol remains the lowest-cost transportation fuel on the planet and the only meaningful alternative to fracking, tar sands, and deep-water drilling.”

Does ethanol cost less than gasoline? Not exactly. The energy content of ethanol is 33 percent lower than in gasoline. So a gallon of ethanol will cost less than gasoline, much in the same way a can of soda will be “lower cost” compared to a 2-liter bottle. It costs less, because you are getting less.

And it’s disingenuous to call ethanol a meaningful alternative to traditional motor fuels, since it is incapable of scaling up to meet demand.  Under no acceptable calculation of physics or agriculture can ethanol even remotely come close to displacing a significant share of U.S. gasoline consumption.  (In addition, it cannot be called a meaningful alternative when it has to be added to a proven fuel with a well-established infrastructure of facilities and vehicle engines.)

In many ways, the ethanol industry’s failures in Economics 101 and Physics 101 are the reason that the logic of its supporters can appear “postmodern” – to borrow from the penetrating Wall Street Journal editorial.

The public is also seeing such gaps in the ethanol argument. One Wall Street Journal commenter likens the letter to Orwellian Newspeak: “We are denied choice because the federal government won’t force me to buy ethanol in the quantities [the Renewable Fuels Association] would like.”

George Orwell wrote a dystopian novel about the future in the imaginary year 1984, along with a fantasy that explores logical illusions when some talking barnyard animals claim to be superior because they “are more equal than others.”

The animals never debated the merits of turning corn into ethanol.  But Orwell certainly provided a hint at how tortured and confused arguments can become when politics is put ahead of logic.  For the advocates of the Renewable Fuel Standard, it has become a necessity to turn the truth upside-down in order to offer their defense.

Our political discourse deserves better.

Tags:   energy demandethanolfuel
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