Ethanol Industry: Too Big to De-Subsidize?

May 10, 2010

The ethanol lobby has been extremely successful over the course of the last decade in growing the industry into one of Washington’s favorite pet projects. A reported 76 percent of each dollar in subsidies to renewable energies is allocated to ethanol, including $5 billion in annual tax credits. Auto companies historically have been supportive of ethanol, but the tide could be turning.

The auto industry is fighting to delay an EPA rule change that would increase the allowable level of ethanol blended into gasoline from 10 to 15 percent. Carmakers say that the increase could damage catalytic converters and cause “check engine” lights to malfunction. The Alliance of Automobile Manufacturers says that early results from a study of the blend’s effects on engines is troubling, with half of engines tested showing problems.

A 50 percent increase in the ethanol allowance would help the United States meet a 36 billion gallon ethanol mandate made law by the Energy Independence and Security Act of 2007, and help the ethanol industry—which has lost several companies to bankruptcy recently—continue to grow. The industry currently relies on $0.45 per gallon federal subsidy and a $0.10 per gallon tax credit, but both are scheduled to expire this year. Bills to extend the incentives are currently being considered by Congress, but their prospects are unclear.

Under the government’s fuel economy regulations, automakers are allowed to assign higher fuel economy ratings to vehicles that have been specially outfitted to use an 85 percent blend of ethanol and 15 percent gasoline. Yet, very few of these vehicles ever use E85 fuel.

Friends in High Places

President Obama’s Secretary of Energy Steven Chu has been critical of the fuel and has generally been more supportive of policies that would encourage moving away from all combustible fuels. But Obama and chief of staff Rahm Emanuel are both from a major corn-producing state and have been sympathetic to the industry in the past. Just last week, the President visited an ethanol plant in Missouri, saying “there shouldn’t be any doubt that renewable, homegrown fuels are a key part of our strategy for a clean-energy future… I didn’t just discover the merits of biofuels like ethanol when I first hopped on the campaign bus.” Secretary of Agriculture Tom Vilsack—the former governor of Iowa—is also said to be pushing hard on behalf of the fuel.

The EPA is reported to be leaning toward approving the increase, despite calls from automakers for further testing. Environmentalists are also largely opposed to ethanol, citing a net carbon emissions effect that is questionable at best. Though the burning of ethanol itself produces less carbon than petroleum, emissions associated with the growth, harvesting and production of the fuel have been shown in some studies to neutralize any positive effect.

The time is approaching when Washington will have to make a decision about corn ethanol. As the industry grows in size and power, it may soon become “too big to de-subsidize,” despite questionable environmental and energy policy benefits.


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  • Eric

    Ethanol (esp. corn) is just a distraction, diverting time and money from real changes in clean energy.

  • hina

    ethanol is a kinda good way to save energy and produse less poluttion

  • Samie

    Beyond Petroleum?

    I don’t think so in the case of corn or cellulose ethanol. GM bought into the E85 junk but most others didn’t. Land resources, weather patterns (ie droughts and floods), energy process (fertilizing, growing and harvesting), questionable fuel consumption, and food safety concerns are reasons to look past this.

    The Alliance of Automobile Manufacturers vs. the Ethanol Industry, & the very political Presidential Administration vs. Appointed Regulator/energy expert Steven Chu now that is an interesting battle but I bet the most irrational position including how to waste the most amount of taxpayer dollars will come out on top instead of moving towards longer-term energy solutions.

  • Lost Prius to wife

    Samie, I think you are right. The taxpayers will be the biggest losers. And it is not so much that ethanol isn’t an acceptable fuel. One has to start out with an energy system that is designed for ethanol. The auto industry has built their engines around gas and diesel engines, not ethanol. Given enough time and R&D money, I am sure they could come up with some very good ethanol driven engines.

    This still does not address the ethanol source problems, especially since we cannot feed all the people living on this earth now. Should we now starve people just to get ethanol cars going? Yes, oil will run out too. But if we conserve now, it will take longer and allow the future people of this earth to find acceptable alternatives to mankind’s dilemma. I know that I will not be around when everything runs out – I will have died before that happens. But I feel I must do everything I can now to give my grandchildren a fighting chance. Hence my strong belief in hybrids and electric cars using renewable sources.

  • Dan M

    Ethanol blenders credit is only 45 cents a gallon.. Take away the subsidy and ethanol would cost $2.07 cents a gallon.. (it currently trades for $1.62 (cbot)
    Unleaded Gas trades for $2.19

    Gasoline Subsidies.

    The report divides the external costs of gasoline usage into five primary areas: (1) Tax Subsidization of the Oil Industry; (2) Government Program Subsidies; (3) Protection Costs Involved in Oil Shipment and Motor Vehicle Services; (4) Environmental, Health, and Social Costs of Gasoline Usage; and (5) Other Important Externalities of Motor Vehicle Use. Together, these external costs total $558.7 billion to $1.69 trillion per year, which, when added to the retail price of gasoline, result in a per gallon price of $5.60 to $15.14.

    You don’t see Ethanol using our Military to protect the corn fields like Oil uses our Military to protect their “interests”

  • Dan M

    Samie ..actually the ONLY difference between a Non Flex Fuel Vehicle and a flex fuel vehicle is the Fuel Mapping (software) ..sometimes different fuel injectors.. It literally cost the auto industry $40 to change a non FFV into a FFV

    That’s right form GMs Vice Chairmans mouth http://www.youtube.com/watch?v=efVWYxBQFyc&feature=player_embedded

    It just is nota big deal..the Model T was a FFV.. This allowed the Farmers to make their own fuel (and booze)..because ethanol is really nothing more than moonshine

    As far as Food Vs Fuel

    Total myth.. BECAUSE The reality is a Bushel of Corn costs $3.60 for 56 lbs.. that’s 6 cents a pound for corn.. it is incredibly ludicrous to say ethanol is making food expensive. If you have a 1 pound product made entirely of corn that costs $3.00 .. only 6 cents of that is the corn..the other $2.94 is transportation, wages, packaging, storage , profits to make the product.

    So you can see the Food Vs Fuel was just anti ethanol propoganda..that everyone just kept repeating..simplly wasnt true

  • Dan M

    Also keep in mind Corn ethanol is regulated to just 15 Billion gallons..by Law we cannot make more than 15 billion gallons of ethanol from corn (per the Renewable fuels Standards of the 2007 National Energy and Security Act.

    We are already producing 12.5 billion Gallons ..so corn is only allowed 2.5 billinn more gallons..just not a big dreal..

    To meet the Renewable Fuels Schedule of 36 Billion Gallons by 2022 the rest must come from cellulosic feedstock.. Corn is simply the foundation to build up volume.. for the next generation ethanol.

    This is where it gets exciting.. there are a lot of companies working on next gen cellulosic ethanol .. The first Waste (garbage) to Ethanol production just started ..

    “”Fiberight LLC announced today that it commenced production at the nation’s first commercial cellulosic ethanol plant using enzymatic conversion technology and industrial/municipal solid waste (MSW) as feedstock. Fiberight recently completed its initial stage development by converting a former first generation corn ethanol plant in Blairstown, Iowa to cellulosic biofuel production which incorporates specialized waste treatment and biochemical technologies to efficiently turn MSW into biofuel.”

  • Dan M

    As far as the Lobby to get E15 approved..again not a big deal.. Brazils BASE fuel is E22 .(keep in mind this waiver for E15 is not a mandate for Stations simply allows stations that want to add E15 to add it )

    I believe the best solution to satisfy everyone is Blender Pumps

    Blender Pumps are perfect in that they allow the consumer to choose whatever fuel they want
    E0, E10, E20, E50, E85

    The Oil Lobby is fighting the installation of blender Pumps..they prefer you don’t have a choice at the pump lol

    Blender Pumps really are the key .it allows everyone to choose whatever fuel they want to use..for Political reasons ,for Old Cars with cork gaskets that should use pure unleaded etc..

    Ethanol is key because it breaks up Oils Monopoly and creates jobs here in the United States..local communities instead of Building Palaces in Saudi Arabia (other than a few radical nutcases I’m sure the people themselves are nice folks..but come on how about supporting our own communities for a change !

  • Mike S

    This argument has been going on since the Carter Days. Any car with a fuel injected engine can run on a 50% mix of Alcohol. I have been doing it ever sence we got an E-85 pump (5 yrs ago). Cars required to run on premium gas, run better on 50% E-85 and 50% 10% Reg blend. I havn’t had any problems with the check-engine-light. The catalytic converter is not even needed when using Alcohol. The only thing cleaner than Acohol is Hydrogen and that will never happen. Brazil is running all of their autos on 96% Alco. and 4% water the car are made by ford and other main manufactures. This seem to contradict some of the above arguments. COST what about our Golf Coast just add that to the price of Oil. Oil cost when you include drilling, transpertation, refineing, and making of the additives cost alot more than a tractor running on a corn feild. Corn yields 300 gal per Acer but sugar beats and sorghum yields 1000 gal per acer.

  • Lost Prius to wife

    Dan M, you missed my point completely. I said nothing about the cost of ethanol fuel. The cost of ethanol fuel will be whatever it will be relative to petroleum produced gas and diesel cost. My point was that if we would worldwide produce ethanol as the only fuel to stop the use of petroleum for gas and diesel we would increase the number of starving people in this world, not decrease that number. Or are you one of the many people that believe there are no starving people except for the ones that are lazy and/or choose to starve? I am of the opinion that we should not increase the masses of starving people in this world just to move our vehicles around.

    My other point that was missed was the present designs that burn ethanol are designs that could readily burn ethanol without any significant design change. Most E85 vehicles that I have researched get poorer fuel mileage compared to the same car burning petro products. This usually offsets any price advantage from ethanol fuel. If the engine designs were truly designed as ethanol only engines (compression ratios, burn fronts, valve placement, injector placement, etc. for ethanol only), I think you would find that the ethanol engine mileage would increase dramatically. Yes, one can change out the injectors and the vehicle will burn ethanol, but with what kind of efficiency?

    The idea is to “get the most bang for the buck”. That is done using design efficiency. I think ethanol can help, but it is hard to show that it will save the world without having astronomical R&D costs. I think hybrid and electric vehicles stand the best chance to get everyone “the most bang for the buck” without astronomical R&D costs. In 2006 I was told it would take me 5 to 10 years before I would break even compared to a “standard” vehicle of the Prius’ size. Yet I cleared that cost crossover mark before 3 years. If I had listened to those that did not do their research properly, I would be paying at least double for the gas cost now. Did I “get the most bang for the buck” that I expected? You bet I did.

  • Dan M

    Lost Prius..

    No one ever said anything about replacing all petro with ethanol..utter nonsense .. But we coulkd if we wanted if you would bother to read thre facts instead of the propaganda.. once again in the US Corn Ethanol is regulated ..we can only produced 15 Billion Gallons of Corn ethnaol..we already produce 12.5 gallons .. ..

    IS there some part of the National Energy and Security Act renewable Fuels schedule that you dont understand ?

    The idea that corn ethanol is making starve is ridiculous.. do the Math.. It’s very simple .. corn is $3.60 a bushel..6 CENTS a Pound ..what part of that don’t you understand.. ^ cents a Pound anyone with any common sense understands the cost of food has has very little to do with the grain and everything to do with transportation, storage , processing , packaging , wages, profits..the actual ingredient is at the bottom of the list..

    That’s simplly a fact.

    Are you aware the Food Vs Fuel debate ..never was a debate but rather a PAID for Orchestrated propaganda paid for by the GMA ?

    As far as MPG.. yes you get less mpg on in a standard Flex Fuel Vehicle..(as long as E85 is priced right ..makes no difference though).. but that is changing ..The 2011 Buick Regal will get roughly the same MPG unleaded or E85

    The is no astronomical costs ..again utter nonsense.. The Auto Industry wasn’t going to start optimizing vehicles for E85 when they mostly ran on Unleaded..but now that is starting to change they will start introducing more cars like the 2011 Regal that is more optimized to run on higher blends of ethanol..

    In the meantime that is why we push for Retails to maintain at least a 15% price spread between E85 and Unleaded..the National Average is 24% .. E85Prices.com

    I am for ALL forms of fueling options for the consumer..Gasoline, Ethanol , Electrics Hydrogen etc.. diversity is th ekey

    Oil has had a Monopoly for a 100 years ..Ethanol is the only alternative that can take large Market-share from Oil because the vehicles are essentially the same

    A Million jobs in the Ethanol Industry now..American made Jobs ..local communities..

  • ex-EV1 driver

    @Dan M,
    re: “… actually the ONLY difference between a Non Flex Fuel Vehicle and a flex fuel vehicle is the Fuel Mapping (software) ..sometimes different fuel injectors.. It literally cost the auto industry $40 to change a non FFV into a FFV “

    This is a big lie. A vehicle will run off of E85 with these minimal mods (actually just a $5 fuel sensor in most cases), however, the entire fuel system will generally rust out or disolve with repeated use of E85. The car companies count on few people really actually using E85 and assume that in the miniscule case that they actually do, they’ll put in expensive, ethanol resistant plumbing under warranty.
    It’s actually just another auto industry scam on ignorant politicians.

  • ex-EV1 driver

    With ethanol, it really comes down to miles driven per year per acre of land (including the huge amounts of other resources such as water, fertilizer, and energy required in the fermentation and distillation process). You can compare it with solar energy.
    My question to Dan M (who clearly wants to stand up for ethanol) is:
    How many square miles of land would it take to fulfill what fraction of our country or planet’s transportation needs?

    With solar electricity, it’s under 10,000 square miles – or a patch of desert 100 miles by 100 miles for the US or a very small fraction of the uninhabitable Sahara desert of Egypt, Libya, Tunisia, etc.

  • Samie

    Lost Prius to wife, I will take on Dan M’s point about pricing….

    Dan M,
    You left out one very important point in your argument, in that corn is heavily subsidized by itself. So while it is true that petro should cost more becasue of hidden costs, corn has hidden costs in the form of massive taxpayer subsidies. Also, you can add the hidden costs of producing more CO2 and the amounts of raw energy needed to complete the process.

    How do you explain when we have droughts or floods the price variations that result from this? Also, your idea about mixing of E– blends is troubling. On one-hand by doing this, you allow for greater competition and you get the lowest price passed on to the consumer (assuming you don’t create trade tariffs or increase U.S. subsidies). BUT at the same time you give up the idea of more domestic energy becasue you import more ethanol from places like Brazil and this also means you have very little control over land problems, deforestation or geopolitical problems.

    Many economic papers that have been done on this subject point to cellulose ethanol as the clear choice compared to corn but by no means does any reasonably educated energy expert say that ethanol can replace a majority of our domestic fueling needs. Also, expanding cellulose ethanol to viable rates means you need to open up much of the farmland that is preserved through voluntary conservation land programs.

    The most alarming problem with ethanol is, how does it encourage market innovation for fuel efficiency technology or independent fueling?
    Example..
    I drove past many on the interstate who were in town to see Sarah Palin when the election was happening. I seen the E85 guy with bumper stickers all over his giant SUV telling people how great ethanol is. This brought me back to the Bush Jr. years, when you seen the most energy inefficient vehicles with ethanol stickers on them. So the point is what good does replacing a Hummer with fuel-flex do, when you get around the same 8-12mpg as petro? And market innovations by most accounts will do nothing to make the fuel efficiency much greater, unlike the market incentives for improving battery capacity and in renewable energy capturing (ie solar, wave, wind, ect…) in electric vehicles.

  • Max Reid

    As per the latest info in May month, 84 % of gasolene sold are E10 which means Ethanol’s share in light duty vehicle fuel is 8.4 %.

    In Brazil there are 10 million Flexfuel vehicles, looks like Ethanol is the fastest source of auto fuels with 18 million + flexfuel vehicles worldwide.

  • looking beyond

    subsidizes… whatever.

    Electric cars are subsidized, ethanol is subsidized, computers and the internet were subsidized, automobiles subsidized, roads, wastewater, housing, police, hydro-electric dams, the space shuttle, k-12 schools (both private and public), weapons development….

    Ethanol is a good model if not for one simple factor, we do not need to build an infrastructure. Just add more pumps at preexisting fueling stations. We can grow crop in the heartland, we can harvest in the desert.

    Additionally, If you’re lucky enough to have yard space, you can grow potatoes, etc. Or use your compost/kitchen vegetable scraps.

    Tthe individual can produce their own fuel on a weekly basis. They do not need a capital intensive purchase –ie a new electric car. They can use any piece of crap car they can procure. So for the poorest members of society, we can offer a simple solution that don’t require a banker’s signature. And cooperatives would ideally be best for those less inclined to distill, but capable of paying into the communal pot for production cost….

    Apart from that, in the desert, where someone wants to put 100 square miles of solar panels, we could just plant mesquite where it once stood. Mesquite will produce per acre as much or more ethanol than corn. Plus, you can grow pimelon and prickly pear as understory to the Mesquite, adding more fuel to the total. ALL without introducing fertilizer or GMO crop, or irrigation.

    That’s a reality far too many folks are just not willing to entertain. they want their Star Trek futurism, when we have simple technology that can be implemented NOW.

  • Fred Linn

    The final product when ethanol is made from corn is DDG(dried distillers grain)—high quality, high protein animal feed. The purpose for which the grain was intended for in the first place. The end result of using DDG is meat, eggs and dairy products. All are nutritionally high quality foods.

    The result of producing ethanol from corn is food AND fuel.

    But corn is not the only source of ethanol. There is sugar cane and sugar beets—both of which grow well in the US. There is sorghum grain—or any type of grain.

    In fact, any type of plant material at all. Even wood. In WW2, the US produced butadeine, artificial rubber, using ethanol made from wood logging and milling waste from a plant in Wisconsin. Ethanol kicked Hitler and Tojo’s butts. Without ethanol made from wood—we never would have been able to produce the ships, planes, tanks, trucks, jeeps and so on that did the job.

    We can even make ethanol from desert plants—agave cactus—a very highly productive source of ethanol. It has been done in Mexico for hundreds of years. It is called tequila.

    Ethanol is cleaner, safer, and produces almost no emissions when compared to oil. Why do you think oil companies have spent so many years and billions of dollars trying to keep ethanol off the market?

  • steven blox

    I believe 3 main points are sidestepped on both sides of this issue:
    1) Food vs fuel: the main byproduct of ethanol is cattle feed. It has almost the same value as the ethanol itself. Since 20% of the midwest is lying fallow because of dept of ag policies which pay farmers to leave land fallow, the ability to increase corn or sugarbeet production is vast. And the following beef production (for export) potential is never mentioned except in farm specific publications. The mainline media sidesteps this completely.
    2) cost of corn production (and associated polution from fertilizer and tractor needs) is also completely misinterpeted by the mainline media. The best example is as follows: Amish farmers do not pay for tractor fuel or fertilizer. 10-12% of a farmers land is devoted to drapht animal feed in Amish farms. A likewise percentage devoted to ethanol (or veg oil diesel fuel) to power tractors accomplishes the high fuel costs of producing “farm fuels”. Likewise: the biggest byproduct of beef production is high quality fertilizer. Again, the Amish farmer example is valid. IE: arguments that corn (or other farm fuel base stocks) are costly to produce are true at this time, but within 5 years these numbers will be completely untrue as farmers will be producing their own fuel nd fertilizer.
    3) his is the biggest argument for frm fuels yet the greenest of the green (and i consider myself to be in this catagory) seem completely oblivious to this fact: once cars get to 55-60mpg, which is completely feasable withing 15 years using MIT ethanol boost low cost proven technology (see Dr Haywoods groundbreaking work in this area) But now for the best arguent…by far… for farm fuels and either ethanol or veg oils as determined by local growing conditions all meet this criteria: once farm fuels become 30% or more of all vehicle fuel, all of a sudden a wonderful thing happens. Finlly an irrefutable argument for ZPG comes into play. No longer is it an emotional argument, all of a sudden ZPG becomes a valid argument. The greenest argument of all, population limits for the entire human race become a tangeable argument not an emotional appeal. Once farm fuels (veg oil or ethanol) become a sourse for food AND fuel, it has the wonderful byproduct of setting a baseline for total human population limits. And the limit is very close to where we are now. Mankind can actually fuel and feed himself with farm fuels and also have a total world population of about 9.5-10 billion people.
    These are the numbers I gathered from the best engineers at Ford motor and 2 universities in the Detroit area whn I did hybrid work there in the erly 2000′s.
    Last point: as ethanol producers go bankrupt from their management playing in the commodities market, it is the biggest oil producers who are buying up the ethanol plants. So massive s the ethanol production in America we actually outproduce Brazil. And our excess is being exported so Europe can comply with their own clean air regulations.
    These seemingly unbelievable truths are real. And yet the misleading emotnal arguments are the only thing that hits the mainline press.
    Even the best educated people I know are being sorely misled on this issue. And once the “follow the money” concept is followed, it is clear why this is happening.
    25 years from now veg oils and ethanol will be established staples to our economy. They are very close to being so now, but until the “right” owners take control of the production capacity, the childish arguments which dominate discussion of this topic will remain.
    10,000 fuel and food producers is better (in my mind) than a handfu of big oil companies. But if things keep going as they are now, the hope of the grand social change that Rudolph Diesel hoped for will never come to pass. 10,000 fuel (and food) producers and milions of middle class farmers was the goal of Diesel when he invented his engine, no one had any idea the earth held so much oil under the ground, it was hoped that a huge new middle class with thouseands of distelleries and veg oil press companies would be created. But then massive oil deposits were discovered and it delayed Diesels vision for 200 years.
    When the discussion gets sidetracked as it is now, big oil will dominate and we will be in the exact same fix we are now. And diesels vision may never get a chance to succeed.

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