Ethanol Industry Seeks Bailout Funds

Published March 1, 2009

The beleaguered ethanol industry, which is experiencing plant closures and disappearing profit margins despite being propped up by protective tariffs, federal subsidies, and renewable fuel mandates, is seeking federal bailout funds from the Obama administration.

Long History of Subsidies

The Renewable Fuels Association, which lobbies for the ethanol industry, is seeking $1 billion in short-term credit to prevent further plant closures, $50 billion in loan guarantees to fund additional production plants, and the abolishment of a U.S. Environmental Protection Agency rule that places a 10 percent limit on the amount of ethanol allowed to be blended with gasoline for conventional automobile engines.

The industry currently benefits from a federal subsidy of 45 cents per gallon sold, an import tariff charging foreign producers 54 cents per gallon, and a federal mandate requiring 10.5 billion gallons of ethanol be blended into the nation’s transportation-fuel mix.

Skepticism Rising

Skepticism about the industry’s viability is resonating even in America’s farm belt, where the Des Moines Register noted on December 22 three of Iowa’s 32 production plants have gone bankrupt and profit margins have fallen to just 3 cents per gallon, even with the help of subsidies and mandates.

“The industry probably overbuilt itself,” the Register quoted Monte Shaw, executive director of the Iowa Renewable Fuels Association, as saying.

Nevertheless, the national Renewable Fuels Association is seeking $50 billion in loan guarantees to build still more ethanol production facilities.

Even more controversial is the effort to induce EPA to lift its 10 percent limit on ethanol blended with gasoline. The industry seeks permission to blend 15 to 30 percent ethanol into gasoline for conventional engines.

EPA believes more study is needed regarding the environmental tradeoffs of higher ethanol content. Automobile experts fear the higher ethanol blend will damage engines, and consumer advocates object to the lower mileage ethanol blends deliver in comparison with regular gasoline.

Endless Handouts

“The 30-year history of federal ethanol policy is one of more and more favors being heaped on this alternative,” said Ben Lieberman, senior policy analyst for energy and environment at The Heritage Foundation. “Heavy tax breaks and subsidies, protectionist tariffs against foreign ethanol, and most recently a mandate requiring substantial amounts of it to be used regardless of economics [are] never enough to overcome ethanol’s disadvantages as a fuel source.

“It is shameful but not really surprising that the ethanol lobby is demanding even more in the form of a bailout,” Lieberman added. “At some point the light bulb should go off that a fuel source that needs so much in the way of corporate welfare to stay viable is not worth it.”

Drew Thornley ([email protected]) writes from Texas.