Now the Ethanol Industry Wants a Bailout

Most of the problems we face are caused by politicians creating solutions to problems they created in the first place,” wrote economist and author Walter Williams earlier this year.

On top of its regular taxpayer subsidies, the ethanol lobby is now seeking $1 billion in short-term credit from the U.S. Taxpayer to help ethanol plants stay in business and up to $50 billion in loan guarantees to finance expansion.

The energy inefficiencies of corn ethanol require high oil prices to be competitive. With plummeting oil prices and the recent bust in commodity prices, the price of ethanol at the pump has fallen nearly in half in recent months to $1.60 from $2.90 per gallon. This new lower price barely covers production costs even with federal subsidies. Three major ethanol producers are now in or near bankruptcy.

A December 24, 2008, editorial in the Wall Street Journal says the ethanol industry wouldn’t even exist without the more than $25 billion in taxpayer handouts over the last 20 years. “Congress only recently passed new energy and farm bills that further greased ethanol production with a 51 cent a gallon tax credit, corn subsidies, and increasingly stringent biofuel mandates. We were told, as usual, that profitability was just around the corner.” 

“The uglier realities of corn ethanol are at least becoming more widely recognized, even on the political left. The Environmental Working Group and five other environmental organizations said this week they oppose a bailout because subsidies "for corn-based ethanol have produced unintended, yet potentially catastrophic environmental consequences, with little or no return to taxpayers in energy security [or] protection from global warming."

As the WSJ says, ethanol may never be profitable in the real world, but in Washington its a lucrative business that provides jobs, and more importantly, votes.

Like Fannie Mae and Freddie Mac, ethanol is a business created by Congress that now has to be bailed out to save Congress from embarrassment.

 

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