If America is "addicted" to oil, then it's equally true that the corn ethanol industry is a world-class junkie when it comes to subsidies. For decades, American politicians have been talking about the need to reduce farm subsidies, and yet, with the ethanol scam, those subsidies, particularly the $0.51-per-gallon tax credit, are thriving.
Making ethanol from corn borders on fiscal insanity. It uses tax-payer money to make subsidized motor fuel from the single most subsidized crop in America. Between 1995 and 2005, federal corn subsidies totaled $51.3 billion. In 2005 alone, according to data compiled by the Environmental Working Group, corn subsides totaled $9.4 billion. That $9.4 billion is approximately equal to the entire 2006 budget for the U.S. Department of Commerce, a federal agency that has 39,000 employees.
But Big Corn isn't satisfied with the subsidies that are paid out to grow the grain. They are also getting massive subsidies to make that grain into fuel. The $0.51-per-gallon tax credit, which is allocated based on the volume of fuel produced, is only part of the subsidy picture. Including producer tax credits, reductions in state motor fuel taxes, and federal grants, the total subsidies for ethanol range from $1.05 per gallon to $1.87 per gallon. But ethanol contains only about two-thirds of the heat value of gasoline; on a gasoline-equivalent basis, the total subsidies range from $1.42 to $1.87 per gallon. ...the American taxpayer may soon be paying nearly $16 billion per year to subsidize the production of a motor fuel that will do little, if anything, to reduce America's overall oil imports.
...In short, American taxpayers are being taxed three different ways in order to produce corn ethanol: (1) the billions in subsidies for growing corn; (2) the billions in subsidies for turning that corn into ethanol; and (3) the billions of dollars in costs that come from higher food prices.
And what about the real cost of producing ethanol? Any such calculation must include the ratio of heat energy acquired from the product opposed to the energy required to make the product.
...for every 1 Btu invested, an investor gets 1.34 Btus in return. The the details--as always--are in the fine print. The scientists are able to achieve that 34 percent net gain only by including "copoducts energy credits," that is, by adding in the energy value of the by-products that are created during the ethanol distillation process. Among the most important of these by-products is dried distiller's grain used for cattle feed. ...but you can't run your car on cattle feed. Without that credit, the total energy profit is about 9 percent: for every 1 Btu invested, an investor only gets 1.09 Btus in return.
Of course whenever ethanol is mentioned Brazil is pointed to as the success story. Bill O'Reilly, for instance, constantly beats this drum. But the real Brazilian ethanol picture is much different than the legend. First the good news:
Brazil has a huge advantage in ethanol production because sugarcane is a far better feedstock than corn. While corn ethanol provides very little, if any, energy profits, ethanol produced from sugarcane produces about 8 times more energy than is required to produce the fuel. That is, for every 1 Btu invested, an investor gets about 8 Btus of energy profits. Brazil's tropical climate makes it perfect for sugarcane production. Petrobras, Brazil's national oil company, claims it can produce twice as much ethanol per acre as U.S. corn farmers and do so at half the cost.
But the bad news is, that for all the touted miracle of Brazilian ethanol, their oil production--yes oil--far exceeds their ethanol.
In 2006, the U.S. imported about 26,000 barrels of Brazilian ethanol per day, or 17,200 barrels per day of oil equivalent (adjusting for the difference in heat energy). That's not much when stacked next to America's 21-million-barrel-per-day oil habit.
Nor does that Brazilian ethanol matter much when compared with America's imports of Brazilian oil and oil products. In 2006, the U.S. imported an average of 133,000 barrels of crude per day from Brazil. When all crude and pretroleum coke and fuel oil are accounted for, in 2006, the U.S. imported an average of 192,000 barrels of crude and oil products per day from Brazil. In other words, in 2006, the U.S. imported 11 times as much energy from Brazil in the form of crude and oil products as it did in the form of ethanol.
The truth about Brazil's energy "miracle" is that it has almost nothing to do with ethanol and everything to do with Petrobras's ability to continue increasing its oil production--the vast majority of which is coming from Brazil's offshore waters.
Whenever talk about corn ethanol gets too uncomfortable for proponents of ethanol, they will often bring up the promise of cellulosic ethanol, made from wood chips, stalks, or switch grass. It all sound like a dream come true: use agricultural waste to create motor fuel. But like many dreams too good to be true, it's too good to be true. It's an energy looser, requiring more energy to produce than can be acquired from the finished product. For 1 Btu invested, an investor gets only 0.5 Btus in return.
A particularly surprising fact was the enormous quantities of water required to produce ethanol--a frightening thought considering the ongoing depletion of ancient aquifers in the west and midwest. The extraction and refining of conventional oil requires--at most--2.8 gallons of water for each gallon of oil produced. Ethanol, however, requires 880 gallons of water for every one gallon of ethanol produced.
Perhaps the most insidious part of the ethanol scam is the way it has actually increased American gasoline consumption.
By producing flex fuel vehicles (FFVs), American automakers get credits from the federal government on the overall efficiency of their fleets. And therein lies the essence of the FFV scam: When calculating fuel efficiency for a given vehicle, the federal government counts only the amount of gasoline that it consumes.
The automakers claim that an FFV will be burning E85 (85% ethanol/15% gasoline mix), not gasoline, for part of the time. That allows them to inflate the fuel efficiency numbers that they must meet under the federal government's Corporate Average Fuel Economy standards. For instance, GM seized on the federal credits by making one of its biggest SUVs, the Suburban, into an FFV capable of using E85. In the real world, the Suburban gets less than 15 miles per gallon. But thanks to the credits, the E85-capable Suburban is magically transformed into a vehicle that gets more than 29 miles per gallon. Of course, that mileage occurs only on paper, not on the highway.
...So how much fuel has the E85-FFV scam cost the U.S.? In early 2007, U.S. News & World Reportmagazine report that the U.S. "will burn 17 billion more gallons of gasoline from 2001 to 2008" as a result of the scam.
So next time a politician--whether Democrat or Republican--begins touting the virtues of ethanol, recognize it for what it is: a pipe dream.