One Quick Point About "Ethanol Subsidies"

I probably should have just created an addendum to Drew's earlier post on Pawlenty/Palin; however, after a couple of readers in St. Louis told me this weekend "You need to post more", I decided to create a stand-alone thread. Lesson: Be careful what you ask for.

Anyway, on the "ethanol subsidies" that everyone keeps talking about. What they are is a blender's tax credit, not a subsidy. With the ethanol tax credits, the government foregoes collecting road use taxes on that fuel. Here in Iowa, the State/Federal fuel taxes are approximately $0.60 a gallon, which is why E10 (blended fuel with 10% ethanol & 90% gasoline) is typically $0.06 less than straight gas here in Iowa. Instead of taking money out of the federal/state treasury (subsidy), the industry is incentivized by the federal/state treasury foregoing collecting some taxes.

Is it still a "subsidy"? Well, if you want to say that a case where the government says you can keep a little more of your own freakin' money is a subsidy, then yeah, I guess it is........but you might want to rethink that position due to The Law of Unintended Consequences.

In fact, I think you can make a case that the use of ethanol actually SAVES the government money in direct crop payments. Under the Farm Bill, counter-cyclical payments are made to farmers when grain prices fail to meet a minimum level. The increased demand for corn due to ethanol fuel has helped increase prices to a point where almost NONE of the corn farmers are receiving payments for selling their prices below the federal minimum levels.

And for everyone saying that "Ethanol causes grocery prices to go up": Ninja please. The old "rule of thumb" used to be that the cost of the corn needed to produce a box of corn flakes added up to SEVEN CENTS per box. That rule dates from back when corn prices bounced around between $2.50 and $3.50 a bushel (approximately 56 pounds per bushel of dried corn), so increasing the price of corn to between $5 and $7 a bushel would cost consumers an additional seven cents per box of cornflakes.

Do you hear anyone complaining about groceries going up by less than 3%? Nope, me neither. Farmers and "Big Ethanol" are a convenient scapegoat for higher transportation costs, labor costs & packaging costs in the wholesale & retail food industry.

posted by Russ from Winterset at 02:53 PM

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