A new study by University of Missouri Food and Agricultural Policy Research Institute (PDF) reveals that the current corn ethanol tax credit is effectively costing tax payers $4.18 per gallon and is driving up grain prices. The study estimates that the tax credit, which would cost about $5.85 billion next year if extended, will lead to 1.4 billion gallons above the 12.6 billion gallons required by law through the Renewable Fuel Standard (see page 64).
In other words, next year the oil companies will be required to buy 12.6 billion gallons of conventional corn ethanol, but because tax payers are giving them $5.85 billion they'll consume 1.4 billion more than required. That works out to $4.18 per extra gallon.
As I've written before, having the tax credit on top of the RFS is like paying drivers to obey the speed limit. (Tip of the hat to Rapier for the analogy.) Some in the industry may be inclined to point to the additional 1.5 billion gallons as a justification for the tax credit, but the price tag should make that argument just silly. Taxpayers have been subsidizing the corn ethanol industry far too long at the expense of developing cleaner, more renewable biofuels.
Plus the FAPRI study also points out that the tax credit is leading to higher prices for corn and other grains--$0.18 per bushel of corn, $0.28 for soy, and $0.15 for wheat. And lest anyone argue that the tax credit is a good way of supporting farmer income, think about this: if we gave farmers an extra $0.15, $0.28, and $015 per bushel for every single one of the corn, soy, and wheat bushels they'll grow next year, it would cost just $3.56 billion. And we'd still have enough of the tax credit money left over to subsidies the extra 1.4 billion gallons to the tune of $1.64.
The FAPRI study's analysis of how the tax credit effects commodity crop prices also confirms the underlying economic truth of indirect land-use change. Higher prices for commodities mean that farmers here in the US and around the world will want to grow more. In those parts of the world where its cheaper to increase production by bringing new land into cultivation than increasing yields on existing lands, that's going to lead to land-use change. Not surprisingly, EPA's analysis, which uses the FAPRI model, finds that the emissions from this land-use change is one of the largest sources of emissions associated with corn ethanol.
Yesterday, Growth Energy had the audacity to argue that the tax credit lowers the price of gasoline. It's a cynical, shell-game claim, meant to earn support from drivers who are actually subsidizing this well established industry every April 15.
The simple fact of the matter is the current corn ethanol tax credit is a huge waste of money. We don't need an additional 1.4 billion gallons of corn ethanol, or the higher prices for grains and more deforestation that come with it. And we sure as heck don't need to be spending $4.18 per gallon to get it. The corn ethanol tax credit (and the biodiesel tax credit too) needs to end!
We have to be smarter about how we use our tax dollars. NRDC has proposed a greener biofuel tax credit that encourage competition among the technologies and only pay for real performance. It's time to transition from corn ethanol's pollution and pork to a new generation of more sustainable biofuels that brings us closer to real energy independence.
This post originally appeared on NRDC's Switchboard blog.
We could be using Industrial Hemp for both ethanol and bio-diesel from it's seeds...and we can grow tons of it easily, refine it regionally locally create lots of jobs and Grren Jobs at that...and it eats CO2 like crazy...
Why won't Obama lift the ban on growing Industrial Hemp even...?
He's ridiculous all talk...
http://hemp4fuel.com/
We don't have to do it with ethanol ... we could do it with natural gas, ammonia fuel, hydrogen, electricity, biofuels, synfuels ... it's our choice to do any or all.
But we need to do it.
And we don't need to be nattered at that we're spending more for it ... because if there's any disruption in the petroleum supply that $4.18 is going to look mighty cheap mighty quickly.
Brazil scaled back the amount of ethanol blended into their gas because the cost of ethanol was making the blend unaffordable. The record high price of sugar was driving up the price of ethanol--your classic case of food competing with fuel for the same feedstock.
That high price of sugar was in essence, a disruption in fuel supply. Corn ethanol will never be cheaper than oil on average and we will never be able to produce enough of it to make a dent in oil imports, and any crop failure is tantamount to a weather induced fuel embargo.
http://biodiversivist.blogspot.com/2010/01/never-ending-biodiesel-subsidy.html
Here is a press release from a large biodiesel refinery:
http://www.earthtimes.org/articles/show/imperium-renewables-resumes-production-of-biodiesel,1198901.shtml
They are located on a port so they can get vegetable oil from anybody and ship biodiesel to anybody. WA state politicians were miffed that they had lent support to this refinery only to find that it used canola oil from Canada instead of Washington State and shipped its biodiesel to Europe (undercutting their producers with out dollar per gallon subsidy).
So now they tell us there is a single rail tanker with canola ostensibly grown somewhere in the northwest that they will use to make biodiesel. It is ostensibly the first of 40 such cars that will be used.
They claim it is 78% carbon neutral, quoting a 1998 study done by the USDA to promote the use of soybeans for biodiesel. Later studies done by an international team of scientists headed by a Nobel Laurette concluded that canola can be up to 70% worse than diesel when it comes to GHG.
Yet we have other alternatives available but our government doesn't see it feasible because it would not generate the dollars (photosynthesis theory for instance). Did you know that the USA has been working on alternative to oil since 1929 but has not found one that is cheaper to produce than oil.
sugar --> ethanol + carbon dioxide
51% of the sugar ends up as ethanol. 49% of the sugar ends up as CO2. You cannot use that CO2 as fuel. It is just lost, like beer fizz.
If it were only about the money, that would be one thing--solar panels ain't cheap and windmills break, so most of our potential oil and gas replacements are in the Model T phase. But with a price subsidy like that, the only conclusion I can come to is that the EROEI (energy return on energy investment) ratio is so rotten as to be laughable. And beyond that, we're making food more expensive than ever. And btw, there's fossil fuel in every step of ethanol production beginning with the massive inputs of nitrogen (i.e., oil-based) fertilizers and petroleum based pesticides. I read a quote from a bemused farmer--something along the lines of "we're going to burn up the last acre of our topsoil to top off your SUV".
What does this country have to do to make conservation as sexy as dumping money down ratholes like Ethanol production?