Thursday, April 21, 2011

On the merits of ending ethanol and other pet Government subsidies- Part III

 We started our journey into this highly timely and relevant discussion re: public ethanol subsidies by the federal government in a broader and controversial discussion here on whether federal subsidies in other areas ought generally to be allowed to go against the basic values or interests of the majority of the American people, and continued with a slight detour to deal with some philosophical matters that touched upon the current debate over Obamacare and health care autonomy here.  We now, in part three of this complex subject finally come to the crux of the present matter:  Namely whether, as a matter of public policy, subsidies and/or laws mandating the use of newer and "environmentally friendly" personal fuels such as ethanol-- and by extension agricultural subsidies in general-- should continue to be provided to encourage the phase out of "older" fuel technology (i.e. "fossil fuels") which we assume for the purposes of our discussion would be advantageous to the nation for not only environmental purposes but many other reasons as well, (including helping wean our nation off its addiction to foreign oil from often unfriendly and tumultuous parts of the world).  

  It is important to note our question here is not whether public policy makers have the authority to make such determinations, (as we believe they indeed do), but whether such public policy is a wise and scientifically/economically justified use of public resources.  In other words, whether the public taxpayer should be on the hook for the development of such new and perhaps even necessary products and technologies that provide broad and beneficial uses to society as a whole instead of, say, leaving the development of such products and technologies to the private sector.  That is the question we are (finally!) set to tackle (or at least begin) with today's post. 

  Initially, we are not unmindful of the critical impact upon farmers and the farming industry that a reversal of current policy would entail, (at least as pertains to agricultural subsidies for things like ethanol production).  Our nation's system of agricultural laws-- read subsidies-- are profound and far reaching; in everything from meat to milk, wheat to soybeans, and of course, our most salient crop here discussed, corn, farmers today are paid (or not) for almost every decision they make in a complex and delicate balancing act by the federal government to stave off shortages by insuring both a stable supply of basic foodstuffs at a reasonable price as well as a sustainable standard of living for farmers, (policies which sometimes seem at odds).  

 Indeed, farming is no longer a simple vocation run by "salt-of-the-earth" men (and women) living off the land and producing extra for their neighbors and society if that year's mixture of toil, sun and rain happens to yield a bumper crop; In many places, the "family farm" is becoming a thing of the past, replaced by bottom-line businessmen and executives at the head of vast agri-business farming conglomerates-- many 
times publicly traded corporations-- utilizing such high-tech solutions as genetically modified hybrid seed, Global Positioning Satellite and weather forecasting systems to determine exactly where and when to plant to achieve maximum production, (and creating, in many cases, local concern and opposition over excessive noise and odors, as well as pollution from waste and pesticide runoff created by such operations, see here).   

  Accordingly, our first (and obvious) observation must be that the decisions today's farming operations make are profoundly in tune with-- and effected by-- public policy vis a vis subsidies for ethanol (or other crop specific subsidies) to the point of effecting/altering their production.  (Indeed, to assume such business-saavy operations of this scope wouldn't be mindful of public policy regarding taxpayer funded federal subsidies would be indeed naive).

  The second observation we would like to make is that, on the whole, there is no doubt that any changes in the current and complex patchwork of rules and regulations that is federal agricultural policy would create winners and losers, (just as it currently does, only with different winners and losers).  For example, the current policy fad of increasing ethanol production undoubtedly promotes the fortunes of corn farmers at the expense of some other types of farming, such that any change in current ethanol policy-- our matter chiefly under consideration here-- would result in the loss of thousands of dollars, (and perhaps jobs as well), to farming operations concerned chiefly with its production.  However, this alone, in our view, is insufficient reason to continue ethanol subsidies.  

  Although on philosophical grounds we continue to believe it is not the government's job to pick winners and losers, but to provide a level playing field, the current "field" is anything but level.  Therefore, without true comprehensive reform of the agriculture subsidy system, we find compelling the argument that every agricultural rule of the government is going to, in some manner, create winners and losers and at this stage of the game cannot be helped.  (Indeed such is the result of our modern federal bureaucracy generally.) Thus, while this argument may be availing in the context of a broader discussion on complete elimination of all federal agricultural subsidies, such a debate will have to await another day and be much more extensive than the matter of which we are chiefly concerned with here re: ethanol.  However, it is also the reason we find other more compelling reasons to be concerned with the current corn ethanol subsidies.   

 As has been previously pointed out, government, as a whole, is a particularly poor and inefficient utilizer of resources due to its excessive overhead and bureaucracy (see here).  Beyond five hundred dollar toilet seats and fifty dollar screws, (if we even make screws anymore, see here), this is particularly so when it comes to new trends and technologies coming down the pike which could make the government, (and by extension the lives of Americans), simpler and more cost-efficient.   

 Moreover, and perhaps more saliently, government has proven itself again and again a particularly poor seer of the next and best technological "trend" even when such trends are in favor of the purposes which it ostensibly seeks to advance.   Indeed, even when a change of course is clearly needed, government is rather like the Titanic than a 15 foot sailboat, unable to quickly and efficiently change even when the needs and safety of all aboard this ship of State called America requires a change in course to avoid certain disaster.  (Contrary to the practice of business, say, with a publicly-traded company which has no choice other than to promptly switch gears if what it is doing isn't working, at least if it is to keep its shareholders happy and stay in business at all!)  

   A good example of this problem of having the government at the helm would be the current debate over which exact biofuel or process for its development should the government be encouraging with our tax dollars (and related "official" policy).   Indeed, there is good evidence that the current corn-food based ethanol production process is a rather poor one among other available choices, (see herehere and here).

   Not only does corn yield a rather low energy "bang for the buck" compared to the cost of creating ethanol from other sources such as beets or sugar cane, (the latter of which is five to six times more energy efficient), but it ignores other promising alternatives such as biodiesel and newer technologies which utilize cellulosic ethanol from non food-stuffs such as sawgrass or bagasse in ethanol production.  Indeed, as the following quote makes clear, it is simply not the most efficient means of making ethanol in any case.  

    "In the current alcohol-from-corn production model in the United States, considering the  total energy consumed by farm equipment, cultivation, planting, fertilizers, pesticides, 
herbicides, and fungicide made from petroleum, irrigation systems, harvesting, transport of feedstock to processing plants,fermentation, distillation, drying, transport to fuel 
terminals and retail pumps, and lower ethanol fuel energy content, the net energy content value added and delivered to customers is very small."
Wikipedia, for full source page in context click here).   

  In contrast, using newer technologies which tap "cellulosic" sources such as sawgrass and other non-food plant matter (including even algae!) and which utilize special enzymes to "chemically" aid in their conversion to ethanol can eliminate altogether the need for heating in the production process of this staple gasoline additive, see here-- which has all but replaced gasoline in cars in places like Brazil, see here--  suggesting ethanol production methods that could be up to seven times more efficient than current processes.  (Indeed, studies show that cellulosic-based ethanol has an FER, or "Fossil Energy Ratio" of 10.3 compared to just 1.36 for corn ethanol, see source in Wikipedia by clicking here and scrolling down to 'bioalcohols' section as well as see other biofuel options generally at same page).   As compelling a case as this is for the ending of government subsidies for corn based ethanol subsidies however, it is NOT the final (or most compelling) word on the matter, (or on agricultural subsidies in general).   

  The biggest argument for eliminating federal ethanol subsidies as currently exist is a more humane one that perhaps you may have guessed by the above reference to non-food-based cellulosic ethanol.  Namely, that in a time when so many people around the world are suffering from the recent spike in food prices-- and indeed literally starving to death in many places--  it makes utterly no sense, and indeed, is a moral and human outrage, that our government would rather support politically correct "environmental" policies that don't even further the public policy goals professed at the cost of starving people to death!  

  Only in Washington could such an unnecessary waste of public resources (and human lives!) for no purpose at all be considered remotely rational, (even if initially begun with the best of "intentions").  Which brings us to the final reason we feel corn ethanol subsidies should be promptly eliminated by the government, (if its inefficiency compared to the private sector, inability to adapt to the promise of newer technologies, and the abject suffering such policies are causing around the globe isn't enough!).  

  The increased amount of acreage dedicated to corn production to make ethanol that otherwise would not be taking place but for the governmental policy favoring corn ethanol production has resulted in an according and inordinate increase in the amount of fertilizer, pesticides, and other potentially dangerous chemicals which many environmental groups claim is polluting waterways when "runoff" occurs, (see here).  And while we would point out that none of this would even be occurring if those same environmental groups hadn't pushed from the getgo for higher ethanol production to reduce pollution from greenhouse-gas polluting gas powered vehicles-- ahh the completely equitability and unavoidable effects of the law of unintended consequences!-- that does not make such claims invalid.  Rather, such claims, if true, provide just one more reason to finally eliminate corn ethanol subsidies.   

  To that end, we are heartened that Senators Ben Cardin (D-MD), and Tom Coburn (R-OK), joined forces last month to introduce a bill that would eliminate the .45 cent a gallon incentive to ethanol producers, see here and here.
  While it is still uncertain if the bill can garner enough broad-based-based and bi-partisan support to overcome what is expected to be stiff opposition from farming interests, (who in the years from 2000-2005 received a total of 115 Billion in federal subsidies, see here, and have reason to fear a potential onslaught if subsidy-cutting fever catches on more broadly), it is encouraging that a broad coalition of citizen and activist groups have voiced strong support for the measure, see here).  The ACLP is all too glad to add its voice to the demand for this wasteful, unnecessary and counter-productive subsidy to be ended.   

  Unfortunately, the only reason we are not hearing MORE of a chorus of support amongst Washington players themselves for elimination of these subsidies is the powerful agricultural interests at stake in "keeping the status quo" and the sums of money the farm lobby continues to shovel at our elected leaders.  Indeed, we will find it no coincidence coming up to the 2012 elections-- which start in of all places, you guessed it, Iowa, the heart of corn country itself!-- if newly elected Congressmen, especially those from farming states in the corn-belt, might be a bit squeamish to support such bills or not be the first to suggest major changes in our patchwork system of non-sensical and often contradictory agricultural subsidies when they are keenly mindful of the 65 million dollars agri-business and its allies contributed to the political parties and candiates' elections in 2008 (62% of which went to Republicans).   

  Nevertheless, and even in the face of considerable pressure from big agriculture, some Republicans have for some time, and to varying degrees-- at considerable risk of cutting their own throats from a campaign contribution perspective I may add-- been sounding the call for broadly based agricultural subsidy reform or at least a review of federal subsidy practices, including the likes of newly elected Tea Party aligned Sen. Rand Paul (R-KY).  We applaud their courage and urge them to stay in what will undoubtedly be a bruising political fight.  

  And it's not as if we haven't been here before.  Last December, before the reauthorization of the ethanol subsidy was voted on as part of the package extending the Bush Tax cuts in the "lame duck" Senate session following historic mid-term electoral gains by Republicans, a bi-partisan group of 17 Senators led by Dianne Feinstein (D-CA) and John Kyle (R-AZ)-- at considerable risk of raising big agriculture's ire against them-- mounted a last minute effort to repeal the ethanol subsidy only to be lopsidedly defeated 81-19. Perhaps Senators Coburn and Cardin know something more that we don't this time around; indeed, we can only hope this display of bi-partisanship will last long enough to end this pernicious practice of the agri-welfare nanny-state. 

  But will this display of bi-partisanship be enough to pass ethanol-subsidy reform through the whole Congress and gain President Obama's support?  That remains the 64,000 dollar question. 

  After considering the kind of public lambasting which the President gave Republican leaders bold (or stupid?) enough to openly suggest fiscal plans to get our spending and debt under control last week, see here-- the same leaders who he had just praised for their hard work on the previous week's budget compromise avoiding a shutdown mind you, see here or for video here-- we have our doubts. 

   Frankly we can't blame any of our elected leaders, particular Republican visionaries like Budget Chairman Rep. Paul Ryan in the House of Representatives, (R-WI.), if they don't want to become walking bullseyes  for Obama's re-election campaign to target the support of confused environmentalists and voters generally with scare tactics that the Republicans not only want to give taxbreaks to the "billionaires," force poor kids to eat dogfood and Grandma to go without medicine but want to destroy the environment as well.   

  In fairness, we would be remiss not to mention President Obama's recent moves towards capping or "means testing" larger and wealthier farms' level of subsidies, see here, (even if such reforms are relatively modest and insufficient in light of the systemic nature of the problem and the cynic in us wonders if, in light of ag-business giving more money to Republicans last election cycle, if there isn't a political motivation behind the President's actions).  Hopefully such fears are mere paranoia on our part, and all the talk about bi-partisanship-- however tenuous it may appear at times-- will result in a giving way to cooler heads now that divided government insures deadlock if our leaders can't start acting like adults and work together for a change.    

  In any case we welcome all comers to the debate; indeed, we will need a much stronger and bi-partisan effort by many more public leaders if we are to defeat the farm lobby and repeal the federal subsidies for corn ethanol-- as well as agriculture subsidies and other programs of the cradle-to-grave nanny state generally-- that make no environmental, economic, or even human sense.   

 Accordingly we call on the Congress as well as President Obama to take the lead in reviewing (and repealing!) this expensive and senseless federal policy which can only benefit a few at the expense of the many and in the long run can only get in the way of sensible American agricultural policies that encourage innovation and competition to the benefit of the American people as well as sound environmental practices.  jp

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