Should we subsidize ethanol?

[ivanm]

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The following excerpt is from an opinion offered by Exxon/Mobil.  I support the subsidy of ethanol, and will try to explain my position on the issue after posting the link to the article. It could be that the government has already voted to end the subsidy in order to reduce spending.

http://www.exxonmobilperspectives.com/2010/10/26/the-economics-of-ethanol/

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Ethanol is used in gasoline as an oxygenator, which helps the engine to produce less emissions than when using a leaded anti-knock additive such as tetraethyl, which was found to be harmful. One guy said he had a problem with ethanol in that it is a detergent.  Shucks, I  welcome a fuel that will help to keep the engine clean of deposits, and I think one of the major oil companies used to plug their fuel as being a detergent fuel.

To me the primary reason for helping the ethanol industry is related to our national energy secuirty, in other words, we need to be less dependent on foreign oil.
It is not unusual to subside or to somehow promote an emerging industry or product that may not be as efficient as an existing one. In this case, alcohol fuels simply do not contain the energy content per gallon that petro based gasoline does, but there is a way to upgrade the efficiency of alchohol fuels.

Right now we are faced with using multi fuel engines that are essentially built to utililize the octane of unleaded regular gasoline.  This requires a relatively low compression ratio in order to prevent pre-ignition or pinging, sometimes called knocking. Ethanol will give very  nice results if it can be used in a high compression engine, but as long as we have to stick with a multi-fuel environment the major car makers will coninue to make engines that can tolerate the unleaded fuels.

I suspect the going compression ratio for a gasoline burning engine around 8.0 to 8.5, where the old hot rods using leaded fuels were on the order of 10.0 and up.
Ethanol probably needs a much higher compression ratio than we now commonly use, and until such engines are put into cars we are saddled with the low fuel performance we are getting from burning ethanol in engines that are designed to use uleaded gasoline.

So IMO it is being short sighted to let the ethanol industry founder and die.  The petro industry keeps promising us more domestic production, but where is it?
It is not unusual to help an emerging product or industry get its legs under it, and we would be foolish to stop supporting ethanol production.  Hopefully the economics of using ethanol will change someday so that we can drop the subsidies.

Consider this, which a change of mind set on fuel usage.  Produce a variety of engines that will burn the blends like they do today and engiines that are designed to use the alky fuels.  It might be hard to get a major American company to commit to such a deal because the car companies aren't doing so well as it is, but the infrastructure is pretty well in place to use the alky blends and all that is needed is the engines that will used the high concentrations of alcohol efficiently.

Would I do it, you bet?  I would keep one vehicle that used existing fuel blends for local driving, which my new truck will do anyway, and would buy a car that performed well on high concentrations of alcohol. My Chevy Silverado is a flex fuel truck, which means it can tolerate E85, and the fuel is available locally.  However, the cost differential is not enough at present to justify using the alcohol fuel.  As a rough guide, if the alcohol blend delivers 3/4 the mpg of unleaded gasoline then the price per gallon should be 3/4 the price of gasoline.

It is really amazing to hear how many people object to using E10, and at the same time, as one guy pointed out, most of the unleaded regular gasoline fuels are already blended with 10 percent alcohol. They are just repeating horror stories about the use of E10, and even the claims that gasohol gives a lot less mpg are suspect.  I have been using E10 as a matter of preference since it came out and have had good luck with it.  As an example, I had a 2003 Chevy Venture, which is a minivan, and it gave 22.9 mpg on E10 and 23.1 mpg on regular unleaded gasoline.  So the difference was minimal.

There is a south American country that is known as an alcohol economy because it uses ethanol in the car engines.  I wonder, who makes their car engines, and are they designed specifically to bet good use of ethanol?

[ivanm]

A common objection to using ethanol in gasoline is that it raises the cost of other products that also use corn, the primary feedstock that is currently being used to make ethanol.  There are other ways to make ethanol, and there are other feedstocks that can be used, so I don't lose any sleep over the claims.

Yep, the price of food may be higher because of using corn to make ethanol, but when you realize that aboutg one third of the annual crop of corn is  being exported, then why can't that be diverted to making ethanol without impacting domestic demand for corn?  Isn't it about time that we put Americans first?

One of the big hang up in the fuels dilemma is the reluctance for find more economical ways to get around and to transport the things we buy at Wally's.  Mass transit is much more fuel efficient than travel by private car, assuming the transit service goes to your destination.  Rail freight is something like 9 times more fuel effiicent than truck freight, but down thru the years rail service has been gutted in favor of the independence of trucks. 

Here in the boonies the population density is low and it would be hard to justify the expense of installing mass transit, but in the larger cities it
has been used for decades now.  Even the independent Texans of the Dallas/Ft. Worth area have installed more mass transit capability, and that may be due to the heavy traffic on the freeways. Those big wide freeways become 8 lane parking lots during rush hour, and people with weak bladders need to avoid them.  Just stop for happy hour and wait for the traffic to die down.     But be sure to take a whiz before you start out
again.

[ivanm]

What form does the ethanol subsidy take?  Is it an out of pocket expense for the taxpayer?  Certainly not, as this snippet explains.

"Provided in the form of tax credits, the subsidy gives 45 cents a gallon to refiners who use ethanol, a renewable fuel additive that comes mainly from corn in the U.S."
 
Suppose the ethanol industry shuts down.  No more tax credits, and a lot less in the way of jobs for people who work in the industry.  A tax credit is essentially a form of lost revenue, so either way we could experience a loss of revenues.

I hope the ethanol producers tell the fucking Republicans to hang their bill in their asses and stop producing ethanol, period.  And then we can import the stuff just like we do gasoline.

What a bunch of short sighted fucktards. We will remain over the oil barrel as long as big oil rules the roost in the energy issue. I realize that we need to balance the budget, but to cut out an exemption that costs us nothing in terms of out of pocket expenses is pretty dense.  Six billion a year is a drop in the bucket compared to the other dumb spending programs that don't do shit for the economy. 

Some of those god damned jerks in the Congress tend to cut off their noses to spite their faces.  We need a recall election capability, or the ability to fire simple minded sobs like this.

[Observer]

No.

[makesenseplease]

If there is a 45 cent tax break at the refiners where are the savings for the buyers.

Stations that claim they use 10% ethanol charge the same or more per gallon as any other station.

We pay them 45 cents and still have to bend over as we pump our gas.

[ivanm]

If there is a 45 cent tax break at the refiners where are the savings for the buyers.

Stations that claim they use 10% ethanol charge the same or more per gallon as any other station.

We pay them 45 cents and still have to bend over as we pump our gas.

It appears that the price of motor fuel is primarily determined by the cost of the gasoline content.

The petro industry has been give some rather generous tax breaks for years now.  My wife has a small interest in a natural gas well and the money she makes can be reduced by the depletion allowance, which is 15% federal and 22% Oklahoma.  In other words, Oklahoma gives an additional 7% tax deduction for depletion.  There are other "business expenses" that can be deducted from the gross income a well produces and you can bet the oil patch hogs have worked it to the limit.

I forget exactly how the effect on the ethanol industry works, but since there is only one tenth of a gallon of ethanol in a gallon of gasohol, which is E10, then the leverage somehow really adds up.  The ethanol subsidy is not an out-of-pocket expense to the taxpayer,and is more like lost revenue.  If there were no ethanol then we would have even less taxable income from those who work in the industry.

Maybe it would most fair to have the tax credit reflected somehow in the motor fuel tax collected and not in the general income taxes collected. In other words, the price of ethanol could be reduced by the amount of tax credit per gallon given to ethanol.  This way the motorists who use the fuel would get the tax savings directly. A similar credit is given to farmers and others who use fuel for off road purposes.  It seems  that when I farmed the fuel tax was reduced by either the amount of federal tax per gallon or maybe the amount of state tax per gallon. It must have been state tax per gallon as my father used to apply for a rebate to the state of Kansas for his farm fuel he used. When the dog was a pup most farm tractors used gasoline and the largest engines were about 60 hp.  My dad's old 48 LA Case would make my 80 hp Massey Ferguson look sick when it came to hauling ass on a plw or on the belt.

We used the LA to pull ensilage cutters with a large flat belt.  The guys would get to horsing around and would ride the feed bundles into the cutter bed in order to kill the tractor.  That old tractor would ping and the front end would sometimes come off the ground, but it usually threw the belt before it would die from overload.  All that from a hopped up LA with about 60 hp. Needless to say, my dad was proud of that tractor.

[Pepsi]

I don't think ethanol is a good long term solution for us due to competing with the food sector as Ivan notes.  However, I think ethanol producers should receive similiar tax breaks that oil producers do.   

How come conservative types (see Observer's comment as an example) don't support ethanol tax breaks but have no trouble with oil producer tax breaks???   

According to the most recent study by the Congressional Budget Office, released in 2005, capital investments like oil field leases and drilling equipment are taxed at an effective rate of 9 percent, significantly lower than the overall rate of 25 percent for businesses in general and lower than virtually any other industry.

And for many small and midsize oil companies, the tax on capital investments is so low that it is more than eliminated by var-ious credits. These companies’ returns on those investments are often higher after taxes than before.
http://www.nytimes.com/2010/07/04/business/04bptax.html

[ivanm]

I don't think ethanol is a good long term solution for us due to competing with the food sector as Ivan notes.  However, I think ethanol producers should receive similiar tax breaks that oil producers do.   

How come conservative types (see Observer's comment as an example) don't support ethanol tax breaks but have no trouble with oil producer tax breaks???   

According to the most recent study by the Congressional Budget Office, released in 2005, capital investments like oil field leases and drilling equipment are taxed at an effective rate of 9 percent, significantly lower than the overall rate of 25 percent for businesses in general and lower than virtually any other industry.

And for many small and midsize oil companies, the tax on capital investments is so low that it is more than eliminated by var-ious credits. These companies’ returns on those investments are often higher after taxes than before.
http://www.nytimes.com/2010/07/04/business/04bptax.html

There are sources of biofuels that do not compete with the feedstocks needed for food stuffs.  And I am betting that farmers could produce higher yielding crops such as potatoes and stock mangoes, which are like sugar beets.  The yield on potatoes is fantastic compared to that of corn, and potatoes make good feedstock for ethanol.

We need to get smart and change our eating habits a bit. For example, white rice has a long shelf life and is a decent substitute for the perishable potato.  There are meats that are more efficient to produce than beef or pork, and most of us need to reduce our intake of those rich foods.  I think the fairest way to handle this is to let the market forces dictate the prices and let us choose between filling our bellies or our gas tanks.

By usinjg mass transit devices, other than planes, for land oveland travel, we can save fuel and still get to where we want to go in decent time and comfort.  I used to ride the bus when working in the WDC area and I really enjoyed talking with the other riders and leaving the driving to the guy up front.  And it was cheaper than driving my own car and paying to park, and a lot safer.