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A 'failed, costly, obsolete' policy? We don't think so

Two sides of the biofuel tax credit and RFS2 debate
By Ron Kotrba | November 03, 2011

In “The Uncertain Tomorrow,” a feature article I wrote for the November 2011 issue of Biodiesel Magazine, I discussed expiring biofuel tax credits, oil subsidies and the National Biodiesel Board’s case for Congress to extend the $1 per gallon federal biodiesel and renewable diesel blenders credit.

Ken G. Glozer, author of Corn Ethanol: Who Pays? Who Wins?, a book published by Hoover Institution Press, emailed me his response to the article. Mr. Glozer wrote:

Ron;

When an industry requires a $1 per gallon subsidy to survive that industry needs to find ways to get far more efficient and either learn to live on what it can make in a competitive market or forget it.

As a taxpayer I would like to see all federal energy subsides including the RFS disappear and this could save more than $30 billion a year or $300 billion over ten years.

And while we are at it I would also like to see the agriculture subsidy machine disappear saving another $15-20 billion a year. With 7 billion people on the planet it is high time agriculture makes it in a competitive marketplace instead of living off us tax payers as they have for the last 75 years.

Perhaps you have not noticed all the multimillionaire corn, soybean farmers especially in the Midwest living high off of federal subsidies. These 1 percent upper incomers and you seem to ignore the fact that poor folks are suffering from ultra high corn, soybean, wheat prices directly caused by the RFS and ethanol and biodiesel subsidies. I guess greed has no conscience.

Best regards,

Ken G. Glozer

My response to Mr. Glozer follows:

Thanks for your response to my article, you should have posted it as a comment to the story online. Would you mind if I posted it there for you? I would like to see it start a discussion.

I don't see anything unusual or peculiar about the federal government helping fund its sensible national interests such as energy security and greenhouse gas emissions reductions.

Also, high fossil oil prices have a far greater impact on food prices than first-generation biofuels. Speculators and traders—the real multimillionaires—drive oil and commodity prices up and, somehow, renewable energy producers get blamed. That's an interesting trick.

When you pull up to the pump and spend $75 a tank on gasoline or diesel that's made from Saudi or Argentine crude, that money effectively leaves our country and goes to work for others in theirs. A dollar a gallon from the U.S. tax payer to domestic biodiesel use (remember that $1 is not a producer credit, or a farmer subsidy - it is a blender credit), which creates local jobs, helps the environment and stimulates the economy, is a far better deal than $4 a gallon straight from your or my pocket to the Middle East.

Thanks again, Ken, for reading and for sending me your thoughts.

Sincerely,

Ron Kotrba

His response is below. I encourage all of you to post a comment on this blog in reply to Mr. Glozer’s comments, or mine for that matter.

Ron;

You are welcome to post it.

The USG has never subsidized another fuel as deeply (per unit of energy produced basis) for as long as corn ethanolsome 33 years. In comparison the oil subsidies are a pittance. Even at 15 billion gallons a year, corn ethanol has no significant impacts on U.S. petroleum imports or gasoline supply compared to a competitive market policy based on DOE EIA forecasts.

Using EIA numbers, the net difference between the RFS for corn at 15 billion gallons per year versus a competitive market is 5.2 billion gallons per year. Adjusting for the lower Btu content, the net is 3.5 billion gallons. Adjusting for the net energy yield of 40 percent, the net-net is 1.4 billion gallons, or less than 90,000 barrels per day in a U.S. gasoline market of 9 million barrels per day and net imports of about 10 million barrels per day. Using CBO budget cost information, the USG subsidy cost to reduce one barrel of petroleum imports is $2,171.

What you are missing, Ron, is that under a U.S. competitive market policy (no subsidies or mandate), substantial amounts of corn ethanol would be used—nearly 10 billion gallons per year according to EIA forecasts as an octane enhancer. The RFS only adds 5 billion gallon more by 2015, and probably not more after that as cellulosic ethanol is going nowhere.

The additional 5 billion gallons comes at an enormous cost to consumers and taxpayers. An estimated $143 billion from 2008-‘17 in budget costs and an estimated $363.7 billion in additional consumer costs in the form of higher food prices, higher prices for FFVs, higher ethanol prices caused by the import tariff and the mileage penalty because ethanol has only 66 percent Btu content of petroleum gasoline. This does not count the hundreds of millions in cost for refiners/importers incurred to comply with the RFS that are passed on to consumers in the form of higher gasoline prices.

The RFS bottom line is that it is great for corn, soybean farmers, farmland owners, ethanol and biodiesel producers, but not consumers and taxpayers. And  we get less than 2 million barrels a day of oil from the Persian Gulf and that could become zero in a few years—not because of the RFS, but because of likely very large increases in oil and gas production in the western hemisphere (U.S., Canada, Brazil). The RFS is a failed, costly, obsolete policy!

Ken  

 

 

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