Lame-Duck Bailouts for Ethanol and Wind? (Here's what's being sneaked into the tax deal)

Ethanol is the Frankenfuel of the energy business, a subsidy-devouring monster that cannot be killed, no matter how great the political opposition. Farm-state senators have apparently succeeded in adding an extension of the ethanol tax credit, which is scheduled to expire at the end of the year, to the tax bill now working its way through Congress.

While that news is disheartening enough, the wind-energy business — the electricity sector’s equivalent of the ethanol scam — may also be winning in its effort to garner more federal subsidies. It is pushing lame-duck legislators to extend a part of the stimulus package known as the Section 1603 tax credit, which gives cash directly to wind-project developers. But what the wind boosters really need to keep their struggling business afloat is a mandate requiring the production of renewable electricity — at least 15 percent by 2020. And some Democratic senators are pushing a bill that would do just that.

Any legislation that provides more subsidies for ethanol or wind energy in the final days of the 111th Congress will be a major loss for taxpayers, as billions of additional dollars will be lavished on sectors that cannot survive in the free market.

Both industries have a long history of subsidies. The ethanol sector began suckling at the public teat in 1978 and has never been weaned. Instead, the industry has convinced Congress to provide ever-increasing volumes of taxpayer cash on the promise that their corn-distilled elixir will drastically reduce America’s need for foreign oil.

That hasn’t happened, and it won’t. Nevertheless, in 2004, Congress enacted the 45 cent per gallon Volumetric Ethanol Excise Tax Credit, the subsidy to ethanol blenders it now seeks to extend. And in 2007, legislators decreed that U.S. motor-fuel retailers must be blending at least 15 billion gallons of ethanol per year into the nation’s gasoline supply by 2015.

The industry responded to the mandate by doubling its production capacity between 2007 and 2010. But it built too much capacity, too soon, which pushed a bushel of ethanol producers into bankruptcy. Their problem now, as one ethanol lobbyist put it, is that “we have lots of gallons of ethanol chasing too few gallons of gasoline.” In October, the EPA gave the industry a bailout of sorts, approving an increase in the amount of ethanol — a hydrophilic, corrosive, low-heat-content fuel — that can be blended into the U.S. gasoline supply from 10 percent to 15 percent.

But the ethanol producers, as usual, can’t get enough of your money, and they are working hard to assure that the fat subsidies (which now total about $7 billion per year) keep flowing. Last month, their main lobby groups — the Renewable Fuels Association, Growth Energy, and the American Coalition for Ethanol — sent a letter to congressional leaders telling them that ethanol has been “uniquely successful in reducing our dependence on foreign, imported oil.” They urged Congress to pass legislation extending the tax credit before the end of the year.

And they are likely to get that extension, despite the fact that on November 30, a bipartisan group of senators — nine Democrats and eight Republicans — declared their opposition to the continuation of the subsidies, saying they were “fiscally indefensible and environmentally unwise.” Those points are certainly true. But if you need another fact to shift your gasohol-induced anger into apoplexy, consider this: Ethanol has done nothing to cut oil imports. Between 1999 and 2009, U.S. ethanol production increased sevenfold, to more than 700,000 barrels per day. And yet, over that same time span, U.S. oil imports increased by more than 800,000 barrels per day.

While oil imports are increasing and the ethanol industry is producing too much ethanol, the wind-energy sector is being garroted by that dastardly opponent of renewable energy: competitive markets. In late October, the American Wind Energy Association announced that through the first three quarters, just 1,600 megawatts of new wind capacity was installed in the U.S., “down 72 percent versus 2009, and the lowest level since 2006.”

In a press release, the lobby group said the solution for its woes were — wait for it — more subsidies and mandates. The group’s CEO, Denise Bode, said that “the best way to galvanize the industry now will be continued tax credits and a federal benchmark of 15 percent renewables in the national electricity mix by 2020.” Bode continued, saying that those subsidies and a 15 percent renewable mandate “will send a clear signal to investors that the U.S. is open for business.”

But the market is saying that it doesn’t want the wind industry’s product. The reason: Even with the current subsidies for wind projects, natural-gas-fired generation remains a cheaper, more reliable option. That’s remarkable, given that the effective subsidy for wind-generated electricity, the $0.022 per kilowatt-hour production tax credit, amounts to $6.44 per million BTUs. By comparison, natural gas now sells on the spot market at Henry Hub, a major trading location, for less than $5 per million BTUs.

Two years ago, shortly after launching a multi-million-dollar media extravaganza aimed at promoting his “Pickens Plan,” Dallas-based billionaire T. Boone Pickens said that natural gas must cost at least $9 for wind energy to be competitive in the marketplace. (The Pickens Plan would involve subsidizing wind power and encouraging the use of natural gas — of which Pickens owns much — to fuel heavy trucks instead.) In March of this year, Pickens was still hawking wind energy, but he’d lowered his price threshold, declaring, “The place where it works best is with natural gas at $7.”

Perhaps, but Pickens and his subsidy-seeking pals have a big problem: Cheap natural gas may persist for years to come. Last month, the International Energy Agency’s chief economist, Fatih Birol, said that the world is oversupplied and he predicted that “the gas glut will be with us ten more years.” The abundance of natural gas, which is largely due to the gas industry’s newfound prowess at unlocking galaxies of methane from shale beds, has some wind-industry insiders predicting that new U.S. wind-generation installations will fall again, by as much as 50 percent, in 2011.

Unable to compete in the free market, the wind industry’s only near-term hope is an ethanol-style mandate. And if given that mandate, perpetual ethanol-style subsidies will surely ensue. Congress, please, just say no.

– Robert Bryce is a senior fellow at the Manhattan Institute. His latest book is Power Hungry: The Myths of “Green” Energy and the Real Fuels of the Future.

H.L. Mencken
First printed in the American Mercury, March, 1924.

….LET the farmer, so far as I am concerned, be damned forevermore. To Hell with him, and bad luck to him. He is a tedious fraud and ignoramus, a cheap rogue and hypocrite, the eternal Jack of the human pack. He deserves all that he ever suffers under our economic system, and more. Any city man, not insane, who sheds tears for him is shedding tears of the crocodile.

No more grasping, selfish and dishonest mammal, indeed, is known to students of the Anthropoidea. When the going is good for him he robs the rest of us up to the extreme limit of our endurance; when the going is bad be comes bawling for help out of the public till. Has anyone ever heard of a farmer making any sacrifice of his own interests, however slight, to the common good? Has anyone ever heard of a farmer practising or advocating any political idea that was not absolutely self-seeking–that was not, in fact, deliberately designed to loot the rest of us to his gain? Greenbackism, free silver, the government guarantee of prices, bonuses, all the complex fiscal imbecilities of the cow State John Baptists–these are the contributions of the virtuous husbandmen to American political theory. There has never been a time, in good seasons or bad, when his hands were not itching for more; there has never been a time when he was not ready to support any charlatan, however grotesque, who promised to get it for him. Only one issue ever fetches him, and that is the issue of his own profit. He must be promised something definite and valuable, to be paid to him alone, or he is off after some other mountebank. He simply cannot imagine himself as a citizen of a commonwealth, in duty bound to give as well as take; he can imagine himself only as getting all and giving nothing.

Yet we are asked to venerate this prehensile moron as the Ur-burgher, the citizen par excellence, the foundation-stone of the state! And why? Because he produces something that all of us must have–that we must get somehow on penalty of death. And how do we get it from him? By submitting helplessly to his unconscionable blackmailing by paying him, not under any rule of reason, but in proportion to his roguery and incompetence, and hence to the direness of our need. I doubt that the human race, as a whole, would submit to that sort of high-jacking, year in and year out, from any other necessary class of men. But the farmers carry it on incessantly, without challenge or reprisal, and the only thing that keeps them from reducing us, at intervals, to actual famine is their own imbecile knavery. They are all willing and eager to pillage us by starving us, but they can’t do it because they can’t resist attempts to swindle each other. Recall, for example, the case of the cottongrowers in the South. Back in the 1920’s they agreed among themselves to cut down the cotton acreage in order to inflate the price–and instantly every party to the agreement began planting more cotton in order to profit by the abstinence of his neighbors. That abstinence being wholly imaginary, the price of cotton fell instead of going up –and then the entire pack of scoundrels began demanding assistance from the national treasury–in brief, began demanding that the rest of us indemnify them for the failure of their plot to blackmail us.

The same demand is made sempiternally by the wheat farmers of the Middle West. It is the theory of the zanies who perform at Washington that a grower of wheat devotes himself to that banal art in a philanthropic and patriotic spirit–that he plants and harvests his crop in order that the folks of the cities may not go without bread. It is the plain fact that he raises wheat because it takes less labor than any other crop–because it enables him, after working no more than sixty days a year, to loaf the rest of the twelve months. If wheat-raising could be taken out of the hands of such lazy fellahin and organized as the production of iron or cement is organized, the price might be reduced by two-thirds, and still leave a large profit for entrepreneurs. But what would become of the farmers? Well, what rational man gives a hoot? If wheat went to $10 a bushel tomorrow, and all the workmen of the cities became slaves in name as well as in fact, no farmer in this grand land of freedom would consent voluntarily to a reduction of as much as 1/8 of a cent a bushel. “The greatest wolves,” said E. W. Howe, a graduate of the farm, “are the farmers who bring produce to town to sell.” Wolves? Let us not insult Canis lupus I move the substitution of Hyæna hyæna.

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