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Oh, by the way, ethanol subsidies are dead.

By: Moe Lane (Diary)  |  December 29th, 2011 at 02:00 PM  | 

RESIZE: AAA

Details here and here: the short version is that the Senate back in June kicked off opposition to continued ethanol subsidies via a bipartisan amendment: it didn’t pass, but Congress has just let both the ethanol subsidy and a restrictive foreign tariff (on Brazilian sugar-cane ethanol) lapse. Given that the Iowa caucuses will be finished by the time Congress reconvenes – and given that the House of Representatives is currently chock-heavy with people who spit at the very phrase ‘ethanol subsidy’ – getting back either is going to be a problem for the domestic ethanol industry. Mind you, there are still mandates for using ethanol in place, but note again the ending of the tariff; I’m not a businessman, but effectively lowering the price of Brazilian ethanol by 54 cents/gallon while simultaneously effectively raising the price of domestic ethanol by 45 cents/gallon sounds to me like it would at least raise some intriguing alternatives.

More to the point, ending the subsidies on domestic ethanol production is frankly more ethical anyway. Far too much domestic ethanol is made from perfectly-good foodstock that could be better served, well, feeding people. The cycle was rather nasty, thanks largely to that subsidy; and, in fact, it’s one of the reasons why food prices have been rising lately.

In closing: it may or may not make long-term sense to include ethanol into our energy usage. After all, if you can burn something then by definition it’s an energy source. But we cannot adequately and empirically judge the usefulness of ethanol when its market value has been distorted by government interference. Removing the subsidies and tariffs – which is another way of saying ‘picking winners and losers’ – is a good first step towards coming to that judgement.

Moe Lane (crosspost)

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COMMENTS

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  • jakeofalltrades

    It would be nice if we could slap a tariff on other Brazilian goods instead.

  • http://stevemaley.com Steve Maley

    They are just as pernicious as the production tax credit.

    Perversely, the US is the leading exporter of ethanol. One of our leading markets is Brazil.

    Brazil is also one of our leading sources of ethanol imports.

    Brazilian ethanol technically qualifies as “cellulosic” ethanol, and so satisfies Congressional mandates. There is no other major source AFAIK. The switchgrass and wood chip new technologies have not taken off.

    The round trip adds no value. The importers pay the tariff to satisfy the mandates. There is no difference in the end product.

    Are we nuts?

  • burke

    n/t

  • neukm

    is the State of California’s “land use rules” or some such hokey. Seems the Kalifornians add a carbon liability to US ethanol due to acreage being shifted to corn. At least that is my understanding.

    http://cornandsoybeandigest.com/energy/us-importing-exporting-ethanol-and-brazil

    http://www.ethanolproducer.com/articles/8405/ships-passing-in-the-night

  • neukm

    cellulosic, as it is fermented from sugar cane.

  • YnotNOW

    Until then, we’ll still have to pay for the ethanol in our gasoline – just will be able to see it in the price, rather than in our taxes. Hopefully, that will stir some incentive for repeal.

  • Menlo

    I’m not sure what the mandates say, but it would not make sense to be complaining about using “corn” (most of which I don’t consider genuine corn) for fuel if in fact it were not included in the mandate.

  • Menlo

    Taxes will be the same regardless.

  • neukm

    considered “cellulosic” which implies from cellulose, ie woody plant material. This type (cellulosic) of ethanol would seem to have great potential, but in practicality has not gotten off the ground whatsoever.

    The mandate treats corn based ethanol seperately from cellulosic. The former is being used at volumes greater than the mandate, while the latter has gone nowhere, and if I am not mistaken the cellulosic mandate has been receiving an annual EPA waiver.

  • bgintn

    Research indicates that gasoline / ethanol blends may degrade or damage some materials used in existing underground storage tank (UST) systems and dispensing equipment, potentially causing leaks. However, important gaps exist in current research efforts ? none of the planned or ongoing studies on UST systems will test actual components and equipment, such as valves and tanks. While EPA officials have stated that additional research will be needed to more fully understand the effects of intermediate blends on UST systems, no such research is currently planned. The cost of installing a single-tank UST system compatible with intermediate blends is more than $100,000. In addition, the cost of installing a single compatible fuel dispenser is over $20,000. Compared to using gasoline containing no ethanol, E-10 reduces fuel economy from 30 to 28.9 mpg. With E-15, the reduction is from 30 to 28.4.

    http://pure-gas.org/

    http://www.buyrealgas.com/

  • neukm

    on the grounds that it’s intent was to offset the blender’s credit.

    So, it’s okay to put tariffs on other Brazillian products, but not ethanol. Nice

  • acat

    as opposed to cellulose (i.e. paper, wood, grass clippings) to ethanol conversions.

    You’re also right that nobody’s gotten cellulose-ethanol working in industrial quantities.

    I cannot speak to the EPA mandate, but .. since the product doesn’t exist, one must imagine they’re doing something.

    Mew

  • skorrent1

    Isn’t suger cane a “woody plant material”?

  • neukm

    but I believe to in order to make ethanol from sugar cane, the sugar must first be “pressed” from the cane. Then it is fermented into alcohol. The cellulose from the cane is not utilized. Hope this makes sense.

  • Menlo

    Is there any mandate for non-cellulosic ethanol? Certainly the way the debate is framed makes it seem as though there is. If so, would Moe not be correct in claiming Brazilian sugar cane ethanol would replace the current variety?

  • neukm

    a mandate for non-cellulosic ethanol usage. That mandate is currently being exceeded. Brazil does not have the ethanol production capacity to supply the quantity needed. We are currently exporting ethanol to Brazil, and to my most recent knowledge are the lower cost producer, even taking the expiring tariff into account. Brazillian ethanol is deemed more favorable by some statutes which account for carbon emissions, most notably the California Air Review Board. (CARB) So, we are shipping ethanol to Brazil and they are shipping it back to us in lessor quantities.

  • http://stevemaley.com Steve Maley

    Wikipedia: ethanol fuel in Brazil

    As U.S. EPA’s 2010 final ruling for the Renewable Fuel Standard designated Brazilian sugarcane ethanol as an advanced biofuel,[13][113] Brazilian ethanol producers hope this classification will contribute to lift import tariffs both in the U.S. and the rest of the world.[114][115] Also they expect to increase exports to the U.S., as the blending mandate requires an increasing quota of advanced biofuels, which is not likely to be fulfilled with cellulosic ethanol, and then it would force blenders to import more Brazilian sugarcane-based ethanol, despite the existing 54? per gallon tariff on ethanol imported directly from Brazil, or duty-free from the CBI countries that convert Brazilian hydrated ethanol into anhydrous ethanol.[116][117]

  • neukm

    http://sugarcane.org/sugarcane-products/ethanol

    What?s Next? Cellulosic Ethanol

    Sugarcane ethanol today is made from the sucrose found in sugarcane juice and molasses. This current process taps only one-third of the energy sugarcane can offer. The other two-thirds remains locked in leftover cane fiber (called bagasse) and straw. While some of this energy is converted to bioelectricity in Brazil, scientists have discovered new techniques to produce ethanol ? known as cellulosic ethanol ? from leftover plant material.

    This complex process involves hydrolysis and gasification technologies to break down lignocellulose ? the structural material found in plant matter ? into sugar. While cellulosic ethanol can be manufactured from abundant and diverse raw materials, its production requires a greater amount of processing than traditional sugarcane ethanol and is therefore currently more expensive.

    Once engineers and technical experts perfect commercial-scale manufacturing, production prices will come down, and cellulosic ethanol might double the volume of fuel coming from the same amount of land planted with sugarcane.

  • http://stevemaley.com Steve Maley

    Yes, there’s nothing exotic about turning syrup into alcohol, but sugar cane is a grass.

  • zachv

    Why would we do that? Tariffs are horrible for consumers, bar American enterprise from entering foreign markets and discourage free and open trade.

  • zachv

    n/t

  • neukm

    are separate designations..

    http://yosemite.epa.gov/opa/admpress.nsf/0/A7CE72844710BE0A85257973006A20F3

    EPA Finalizes 2012 Renewable Fuel Standards

    The final 2012 overall volumes and standards are:

    Biomass-based diesel (1.0 billion gallons; 0.91 percent)
    Advanced biofuels (2.0 billion gallons; 1.21 percent)
    Cellulosic biofuels (8.65 million gallons; 0.006 percent)
    Total renewable fuels (15.2 billion gallons; 9.23 percent)

  • jakeofalltrades

    And they’re not allowed to retaliate because we’re already legally retaliating for their abuse of free trade.

    Tariffs are bad for consumers, but they’re pretty good for domestic producers, and last I checked we have an employment problem (not a consumption problem).

  • zachv

    I believe YnotNOW is referring to our taxes that go to support the ethanol subsidies, and not the excise tax levied upon gasoline at the pump.

  • Menlo

    The fact that the mandates are exceeded would imply a market advantage, rather than a legal requirement, is responsible for its use.

  • Menlo

    The price of gas may go up, but taxes certainly won’t go down in response.

  • mrrightwing

    I believeBrazil uses sugar beets, not sugar cane, to produce a lot of their ethanol

  • Menlo

    Japan has unveiled a Biogas alternative to traditional gasoline.

    It’s not too “advanced,” but then neither is the EPA.

  • YnotNOW

    no longer have to pay for subsidies, and therefore can support some more constitutional activities, or even better reduce the deficit.

    Paying subsidies for inefficient energy sources is wrong. Paying it when you cannot afford it is even worse. At least when the cost isn’t “hidden” by laundering the cost through general tax revenues, every one can see the cost right at the pump, and generate political will to stand up to the ethanol lobbt, to finally repeal this bad law.

    End the subsidy now. Then work on ending the mixing mandate.

  • YnotNOW

    I agree with you that our taxes will not go down a bit. But at least we can get something better for our money.

  • Menlo

    Less spending is not the same thing as less taxes.

    What’s more, the subsidies are not being paid for any energy source. They are being paid as farmer welfare and to boost Monsanto and all the other wealthy lobbyists. Regardless, like all spending that is easy to criticize, the amount is an infinitesimal share that won’t make any difference in terms of the deficit and influence on Congress.

    From my understanding, the ethanol will add about 5 cents per gallon. I hardly think that’s anything to go crazy over.

  • Menlo

    The ethanol will still be used, and the consumer will still pay for it.

  • lizzie

    when Brazil was suing the US for this unfair trade barrier. It was causing serious strain on US-Brazil relations, which, all things considered, is a silly issue to come between us. Whatever anyone thinks of Brazil, they are a major growing world power, and it is certainly in US interests to develop a very strong economic and political alliance with Brazil whose foreign policy is somehwat influenced by the 34 million Lebanese and Syrian (Christian) immigrants and their descendants.

    My understanding in 2008 was that Brazil’s sugar ethanol was by far the most efficiently produced biofuel because the sugar cane waste was used to generate the power to produce the ethanol.

    brazil, unlike the USA, is an energy exporter. Brazil spent thirty years becoming energy independent, forst by deciding their transport system would be 100% flex-fuel with sugar ethanol, and then by leadin g in offshore deepwater drilling for oil.

    Since GM and Ford are major players in the Brazil auto market, have to assume they have the thechnology to transfer back to the USA.

    It was the small but powerful US sugar cane lobby that had joined up with US corn lobby to impose that import tariff.

    So, I am glad both the US subdiy and the import tariff have now lapsed. Assuming Brazil still has extra sugar ethanol capacity – in 2008, they were on the cusp of determining whether to expand capacity for export and mighty offended by US intransigence, led by then candidate Obama, who turned out to be uber-panderer to the US corn lobby.

    When the vote was pending in 2008, the only Senator (and I mean ONLY) who was speaking out to end this import tariff before Brazil started a trade war, was Indiana Senator Richard Lugar. I know many at RS think he is a RINO, but he certainly deserves credit for being the lonely voice in support of free trade on this issue.

    Flex-fuel gives consumers more options – how it is “mandated” is a separate concern.

    The USA is now reliant on Brazil for oil imports – one thing Newt got correct. Obama should re-open US offshore deepwater drilling instead of going to Brazil to promise to buy their oil from same deepwater drilling technology.

  • travis690

    It remains to be shown that gasoline blended with ethanol reaches these goals:

    1. Which formula results in the highest efficiency for the engine burning it? At present, 100% gasoline (clear gas) results in a higher output per unit of input than when any blending takes place.
    2. What is the most efficient means of transport for the fuel? Currently, clear gas can be transported by truck, train, ship, or pipeline. Blended fuel cannot be transported by pipeline, which is the least-costly method of transport. We have to transport it over land or sea.
    3. What are the cost input? Ethanol requires higher inputs of water and energy to produce than does clear gas.

    I think these questions tip the scales in favor of clear gas over any type of gasoline/ethanol blend.

  • Dave_A

    Since without them we would be burning pure, petroleum-based gasoline.

    The entire ethanol industry exists ENTIRELY due to government mandates for adulterated fuels… Including a push for a 15% mandate – and the associated destruction-by-mechanical-failure of most used vehicles, since existing fuel systems are not designed to handle that concentration.

  • Menlo

    Why would it be used, as neukm claims, in excess of the requirements?

  • YnotNOW

    In that government spending by definition must be paid for by either taxes, borrowing or inflation – all of which are essentially a form of taxes.

    That’s why Milton Friedman emphasized government spending as supplanting private economic activity, regardless of the tax rates. Government spending is a drag on the economy, one way or another.

    Of course, these subsidy spending costs are extremely small compared to our overall government spending problem, but they are an easy start. If we cannot cut unconstitutional and wasteful spending, how are we going to tackle the real issue of entitlement spending and all of the costs of “good” things that will need to be cut drastically if we are ever going to get our fiscal house in order?

  • YnotNOW

    In that government spending by definition must be paid for by either taxes, borrowing or inflation – all of which are essentially a form of taxes.

    That’s why Milton Friedman emphasized government spending as supplanting private economic activity, regardless of the tax rates. Government spending is a drag on the economy, one way or another.

    Of course, these subsidy spending costs are extremely small compared to our overall government spending problem, but they are an easy start. If we cannot cut unconstitutional and wasteful spending, how are we going to tackle the real issue of entitlement spending and all of the costs of “good” things that will need to be cut drastically if we are ever going to get our fiscal house in order?

    It is the same argument as earmark reform – the actual dollars are small but symbolic of the favoritism and spending problem overall.

  • Dave_A

    And in some areas there are also higher state subsidies & mandates as well…

    Without government meddling through mandates & subsidies there IS NO market advantage, and there would be NO ethanol (or MBTE, or any of the rest) in our fuel…

    10% ethanol has been quite destructive to the fuel systems of boats & small engines, and has largely put an end to using auto fuel in small aircraft (as you can’t use ethanol-contaminated fuel in aviation applications, even in aircraft approved for auto-fuel operation)…..

    15% would add used cars to the list (which the car manufacturers would love (no more 10+yo cars on the road, used prices rising, means more new sales), and most of us who don’t buy new or almost-new cars would hate)….

  • Dave_A

    And that most of the underground storage tanks I’ve seen waiting to be buried are made with some sort of fiberglass…

    That research is entirely believable…

    Ethanol has got to go… Drink it if you so desire, but keep it out of our fuel….

  • gekster

    is that it causes water to condense in fuels.
    That is why it is gasoline only for marine craft.
    I have an 86 truck that collects so much water from the air
    that I have to put dry-gas in with every fill up.
    Either that or drive the 180 mile round trip to Port Huron to get pure gasoline.

    from:
    http://www.mossmotors.com/SiteGraphics/Pages/Ethanol.html

    excerpt:
    The key problem is that ethanol absorbs water from the atmosphere. In fact, fuel with 10 percent ethanol absorbs up to 50 times more water than standard gasoline. Older gas tanks found in many classic cars vent to the atmosphere, increasing the likelihood that moisture will be absorbed into the gas tank at a rapid pace.
    _________________________________________________________

    I have a closed system in my truck, but it is still that big of a problem.
    And any mechanic can tell you of the problems with water in gasoline.

  • Dave_A

    See here: http://www.boatus.com/seaworthy/fueltest.asp

    This can also be a problem for anything else with composite fuel tanks – which typically means boats, experimental (and some certificated) aircraft, and so on… To contrast, most cars & other road-vehicles use sheet-metal tanks & thus have less parts in the fuel system that may be dissolved or weakened by ethanol.

    Now, one can write it off as ‘Hey, it’s all old stuff’ – but it’s old stuff people are still using, that still works, and that they wouldn’t have to repair/replace if not for the govt mandating fuel reformulation.