Who’s Been Naughty? Ethanol Interests

The previous essay spoke of the selfishness of many of today’s political leaders in spending tax dollars for votes, while compromising the economic opportunities for the next generation. In this essay, I want to focus on the selfishness of a particular group: Ethanol special interests, who have succeeded in gouging taxpayers for another $6 billion in wasteful spending in 2011.

Let me make it clear — again — that I am not against ethanol as fuel. In fact, I have spoken out many times in favor of ethanol in specific circumstances. I reiterated this position recently on a Podcast interview on This Week in Energy. For example, I think many areas of the Midwest could produce ethanol sustainably, use it locally, and displace foreign oil. But that’s not what is done at present. I have two complaints, that less discerning readers sometimes mistakenly interpret as an anti-ethanol position.

First, I believe that we have made very big mistakes in the way our ethanol policies are structured. This has resulted in a situation that has led to perpetual welfare for the ethanol industry, and will continue to do so unless major reforms are enacted. So I speak out against specific ethanol policies because I want to help facilitate that reform.

Second, one of the reasons that we have made such big mistakes with our ethanol policies is because ethanol special interests generate lots of misinformation regarding their product. In fact, during the recent debates on extending ethanol subsidies, some of that information can’t be characterized as anything other than outright lies, as documented here.

When Lobbying Reaches a Crescendo of Hypocrisy

In this essay, I want to document the actions of some of the bad actors; those who are telling lies and engaging in much hypocrisy that will simply result in keeping the ethanol industry dependent upon government handouts as they have been for over 30 years.

Let’s start with the ethanol lobbies. There was the Renewable Fuels Association, funding bogus studies to scare people into believing 100,000 jobs could be lost if we didn’t give the ethanol industry a $6 billion handout next year. For those who owned a calculator and looked at the study in question, even in their scare story we would spend on average $50,000 tax dollars to save a job that averaged $37,500. Just for reference, according to David Swenson, a professor in the College of Agriculture at Iowa State University, the entire ethanol industry only employs 30,000 to 35,000 people. In that case, $6 billion in subsidies means each ethanol industry job costs taxpayers $171,000. Yet the claim was that elimination of the subsidy — even though the 2011 mandate for 12.6 billion gallons of ethanol remained in place — would somehow cost 100,000 jobs. Yes, that’s the kind of garbage that is costing our kids their future tax dollar.

When they weren’t funding bogus studies, the RFA was simply telling lies about the level of subsidies that ethanol receives relative to “Big Oil.” Ignoring the lie for a moment, it is clear that ethanol interests believe the answer to subsidies is more subsidies. Personally, I would try to eliminate any legitimate oil company subsidies instead of heaping ethanol subsidies on top to level the playing field. But they don’t do that, because corn farmers don’t want to pay more for diesel.

Then there were ethanol-friendly senators like Chuck Grassley engaging in complete hypocrisy. Senator Grassley is normally a fiscal conservative who abhors wasteful spending. But if the wasteful spending flows into the state he represents then he is fine with it. So he stood on the floor of the Senate and repeated the bogus study on the loss of 100,000 jobs. He repeated the argument from the ethanol industry that if this tax credit wasn’t extended, there would be an immediate 4.5 cent price increase at the pump. Here is a press release from Growth Energy making that claim (it is pretty clear where Senator Grassley gets his talking points).

The Market Provides Expert Testimony

Meanwhile, the actual behavior of ethanol prices in the market was telling a different tale. When opposition to extending the credit was mounting, ethanol prices started to fall on the fear that the credit wouldn’t be extended. As it became more obvious that the ethanol lobby would siphon money from taxpayers for another year, ethanol prices started to climb:

Ethanol Climbs to Six-Week High as Tax Credit Extension Passes

Ethanol futures advanced for an eighth day in Chicago as Congress passed an $858 billion bill extending Bush-era tax cuts and provisions that help support the biofuel industry.

The grain-based additive capped its longest string of advances in six weeks as lawmakers extended a 45-cent incentive to refiners for each gallon of the fuel blended with gasoline and renewed a 54-cent tariff on Brazilian imports.

“We’re simply placing it solely on the shoulders of the tax bill,” said Rich Nelson, director of research at Allendale Inc., a commodities research and brokerage firm in McHenry, Illinois. “That’s supportive for the market.”

So the truth is, not only are we taking money from taxpayers to funnel into the ethanol industry, doing so is clearly propping up ethanol prices. So what the consumer gets in return for $6 billion in taxes is higher fuel prices. While naughty ethanol interests will claim otherwise, they can’t hide what happened in the market.

Growth Energy vs. the RFA and Corn Lobby

Then there was Growth Energy. This ethanol lobby had broken from the pack back in the summer, suggesting that perhaps it was time to debate whether the ethanol credit was accomplishing its intended function. Perhaps, as I had long suggested, it might make more sense to redirect some of that money into building out some E85 infrastructure in the Midwest. They announced their Fueling Freedom Plan, which would redirect subsidies toward infrastructure like E85 pumps. But the RFA’s Bob Dinneen made it clear that he wasn’t interested in jeopardizing the industry’s welfare check or his $300,000+ salary:

“Now is not the time to add uncertainty and complexity to the energy tax debate,” said Bob Dinneen of the Renewable Fuels Association. “Losing the tax incentive will shutter plants and cost tens of thousands of jobs.”

Two interesting digressions in that quote. First, if you follow Dinneen you know that “never” is the time he is comfortable with debating the ethanol industry’s subsidies. Indeed, I have tried to engage the RFA in debate, but then they would have to defend their claims. So they always try to put off those discussions, while insisting that the uncertainty — caused in large part by their unwillingness to debate the issues — means that taxpayers need to continue funding them. The other thing is that when Dinneen made that statement, the RFA already had in hand the study — that they paid for — claiming over 100,000 jobs lost if the subsidy wasn’t extended. Seems like even he couldn’t claim those job loss numbers with a straight face, until the opposition to extending the subsidies grew. One wonders if by this time next year the number will have grown to a million lost jobs if the gravy train stops rolling.

Growth Energy Does a 180

So how did Growth Energy respond? They did a complete flip-flop. By the end of the year, not only were they insistent that the subsidies be continued, they indicated that they would be upset if they were scaled back at all. They had been chastised by the other ethanol lobbies and by the National Corn Grower’s Association, and by year’s end they stepped back in line.

Of course they weren’t immune to a good dose of irony themselves. During the debates on extending the subsidies they issued this press release:

American Ethanol Responds to Distortions

There are some special interests that put their own corporate profit before America’s public interest, and we’re seeing that today with these desperate tactics today by Big Oil and Big Food to distort the truth.

Special interests, corporate profits before America’s public interest, and desperate tactics perfectly describe the campaign by the ethanol lobby to keep their subsidies unchecked.

Pacific Ethanol’s Smear Campaign

Last but not least, we have Tom Koehler, co-founder of Pacific Ethanol. In response to a story at NRDC arguing for ending the subsidies, Koehler wrote some pretty nasty bits and made some groundless accusation. First there was this:

“When Junk Food and Meat Industry say “jump” you say “how high?” Of course that is where the money is in this well coordinated campaign. Your continued polarization of the issue is a disservice to all the service men and woman risking their lives in the Middle East and a disservice to our political discourse. I can only hope the corrupt influence of Junk Food money stops sooner than later at NRDC.”

Followed by this:

“I note that NRDC has not denied and or proved that they are not taking any money from the Junk Food or Meat Industries or from groups or consultants associated with them. Until they are willing to open their books their silence and lack of transparency speaks volumes as does their total coordinated campaign. All while American die in far off places to protect the free flow of oil into our country. Has any American soldier ever died fighting for corn ethanol? Corruption can be the only reason to NRDC’s total polarizing position on this issue.”

This is disgusting on several levels. First, Koehler didn’t identify himself as being involved with Pacific Ethanol until someone called him out. So while he was accusing the NRDC of letting money influence their positions, there is no question that he is a vested interest. (If his comments are indicative of Pacific Ethanol’s management, their bankruptcy filing makes even more sense).

In his comments above, Koehler made a completely groundless accusation that the NRDC is slanting their reporting because they are being funded by the junk food and meat industries. His proof? Nothing. He didn’t even attempt to justify his accusations, he was just attempting to smear. This is not surprising from someone who “has not denied and or proved that they are not taking any money” from organized crime, corrupt politicians, or terrorists.

But the other reason this is disgusting is that he uses the deaths of soldiers fighting in the Middle East as justification for ethanol subsidies. If the ethanol industry was really so concerned about that, why are they exporting ethanol? Doing so only increases our dependence on foreign oil. After all, it takes oil to run those trucks and tractors that are used to make ethanol, and the more ethanol that is exported the more oil we will need to import. Yet these hypocrites turn around and do export some of that ethanol — in record quantities in fact — and this only increases our dependence on foreign oil.


I call on the ethanol industry to stop this hypocrisy. If the industry is so concerned about soldiers fighting in the Middle East, please do the following:

1. Stop exporting ethanol.

2. Start working on getting laws passed into law that only E85 can be sold in Midwestern states where ethanol is produced in abundance.

3. Get laws passed that farm equipment and trucks involved in the production of ethanol must be operated on ethanol.

Then — and only then — can you start to claim any sort of moral high ground over soldiers dying in the Middle East. Given the situation as it really is, your use of this as a tactic to justify more subsidies is repulsive. It is a dishonor to soldiers who — to the extent they are fighting to protect access to oil — are protecting the diesel that goes in your farm equipment.

At the end of the day, this is all about money. Ethanol interests do and say the things they do so they can keep the tax dollars flowing in their direction. All lobbies do that. But I would submit that other lobbies aren’t quite so blatantly dishonest and misleading in presenting their arguments. Some are content to argue the points and hope that their case is compelling. As we have seen from various ethanol interests, they must not feel that their case is compelling enough just to let the facts speak for themselves. Otherwise, why would they have to lie so much?

As always, I invite a response from ethanol interests or readers who wish to dispute my points. If someone wishes to engage on these points, the floor is open, and I am open to publishing any feedback.

This will be my last posting before Christmas. In the week following Christmas, I will post my Top 10 Energy Stories of 2010. Best wishes for a safe and happy holiday season for all my readers.