An Ethanol Defender Misses The Point

With that, I will address some of Marc’s specific points, quoting some excerpts and then addressing them immediately afterward. After taking objection to my point that the ethanol industry’s business model is to lobby the federal government to force their product into the market, Marc responds with this:

Marc Rauch: I believe that these comments from Robert are intellectually dishonest and historically inaccurate. The petroleum oil industry enjoys its position of dominance for one reason only: Federal government interference. 

Again, you can call me a lot of things, but intellectually dishonest I am not. I have warned about the ethanol industry’s business model for over a decade, because of exactly the situation we are seeing now. But to rebut Marc’s last statement, one wonders why petroleum became the fuel of choice in every country in the world. It’s simple. It’s not actually because of interference. It’s because it was cheap, abundant, and had high energy density. That’s why the greenest countries in the world continue to rely on oil — not because there is a powerful oil lobby in all of these countries. This argument presents the ethanol industry as a poor victim against the powerful oil industry, but seeking the federal government to fix this ignores the fact that many do not see it this way — and sometimes their point of view will prevail.

Marc: At this point in time, shouldn’t the oil industry be free from all governments supports and be standing on its own?

This reminds me of two points, the first of which strikes at the very core of almost every ethanol defender’s arguments. There is a difference between the refining industry, and “Big Oil.” Refiners must buy oil, refine it, and sell the finished products. Their margins are usually squeezed when oil prices rise. I can tell you with authority — as someone who has worked in refining and blended gasoline — that what they care about is margins. If they can make more money blending ethanol, that’s what they will do. This model represents the vast majority of refining in this country (e.g., Valero, Phillips 66, Marathon Petroleum).

The exceptions are the real “Big Oil” — ExxonMobil, Chevron, Shell, and BP. They produce oil and refine it, thus one could argue that they have incentive for keeping ethanol out of the market. But they represent a minority of refining in this country, whereas ethanol interests paint them as a unified majority set on blocking ethanol’s markets. It’s a false argument, but makes up the basis for many arguments in keeping ethanol mandates.

The second point is that a high-profile ethanol proponent did write to me and acknowledge that ethanol has an entitlement mentality. So he granted one of my key points, which is instead of trying to grow their markets at home where they have political power, they insist on taking on interests that in some cases are aligned against them.

But, as Marc does in his replies, this person went on to say “But the entitlement is justified given history.” It’s like saying “We were victims in the past, so it needs to be made right.” Look, we could argue about that all day, but it doesn’t change the fundamental fact: There will always be interests — and not just oil interests — aligned against the ethanol industry outside of the Midwest. No matter how you try to paint the opposition, it will exist. You can either keep fighting it on an annual basis — and sometimes the outcome will be what we are seeing now — or you can take control of your own destiny.