Writing in The Hill’s Congressional Blog, lobbyist in chief for the ethanol industry Bob Dineen waxes poetic about the historic nature of the ethanol industry voluntarily giving up losing one of its subsidies, the Volumetric Ethanol Excise Tax Credit (VEETC):

With growing concerns about gridlock in Washington and greed on Wall Street, Americans are wondering whether anyone with a stake in public policies is willing to sacrifice their short-term advantage for a greater good.

Well, someone just did.

Without any opposition from the biofuels sector, the tax credit for ethanol blenders (the Volumetric Ethanol Excise Tax Credit – VEETC) expired on January 1.

In fact, American ethanol may well be the first industry in history that willingly gave up a tax incentive. Facing up to the fiscal crisis in this country, industry advocates have engaged in discussions with the Administration, Congress and our own constituents in an effort to frame forward-looking policies that balance the needs for deficit reduction and the development of clean-burning, American-made motor fuels.

Incentives should help emerging industries to develop and grow, not to be forever subsidized by the nation’s taxpayers. The Volumetric Ethanol Excise Tax Credit — which actually accrued to biofuels blenders, not producers – has helped the renewal fuels industry to stand on its own two feet. So now it is time for this subsidy to be phased out.

As a colleague wrote in an e-mail regarding this work of fiction, “BWAHAHAHAHAHAHA!!!” The ethanol industry did not voluntarily give up this subsidy. Last year they fought to get it extended, but were only able to secure a 1 year extension due to stiff opposition by competing interests. Earlier this year, the industry — knowing that this subsidy was going away — attempted to terminate it halfway through the year and capture the remainder of the funds and use them to create ethanol pipelines (ethanol cannot be piped through the oil pipelines set up throughout the country).

Finally, this subsidy is small potatoes for the ethanol industry. The important subsidy is the Renewable Fuel Standard, which is still set in stone and getting more lucrative for the industry every year, as refiners are required to blend increasing amounts of ethanol into each and every gallon of gasoline purchased by Americans. This is conveniently left out of Mr. Dineen’s op-ed, as he hounds tax credits for fossil fuel industries (and we agree here, to the extent that some of these things are indeed subsidies, they should be ended. Unfortunately, he is assuredly referring to standard manufacturing tax breaks that hundreds of different industries take advantage of).

He also makes it clear that though this subsidy is gone, they would love help (read: money) to build out ethanol pipelines and blender pumps for higher blends of ethanol that consumers do not want.

H/T to Knowledge Problem.

Under attack from almost everyone these days, the ethanol industry has been digging deep to find ways of convincing America that they really are the best. They’ve been running advertisements everywhere claiming that ethanol (and presumably, federal ethanol policies) have helped to keep the price of gasoline up to $0.89 per gallon cheaper in 2010. They commissioned a report from the Center for Agriculture and Rural Development at Iowa State University. The report itself merely updates similar research from past years, the original study can be found here. The abstract (of the 2010 report):

This report updates the findings in Du and Hayes 2009 by extending the data to December 2010 and concludes that over the sample period from January 2000 to December 2010, the growth in ethanol production reduced wholesale gasoline prices by $0.25 per gallon on average. The Midwest region experienced the biggest impact, with a $0.39/gallon reduction, while the East Coast had the smallest impact at $0.16/gallon. Based on the data of 2010 only, the marginal impacts on gasoline prices are found to be substantially higher given the much higher ethanol production and crude oil prices. The average effect increases to $0.89/gallon and the regional impact ranges from $0.58/gallon in the East Coast to $1.37/gallon in the Midwest. In addition, we report on a related analysis that asks what would happen to US gasoline prices if ethanol production came to an immediate halt. Under a very wide range of parameters, the estimated gasoline price increase would be of historic proportions, ranging from 41% to 92%.

This conclusion surprised me. CARD has credibility, and has been more than willing to counter misleading ethanol narratives in the past. However, these results should be highly suspicious, as the price of a gallon of ethanol tracks the price of gasoline fairly closely (and of course, its more expensive adjusting for the lower energy content), so it would be difficult to see how a 7-10% blend of ethanol could keep the price of gasoline down so much. The final sentence, suggesting that gas prices would shoot up if “ethanol production came to an immediate halt” makes one wonder about the intentions of those who commissioned the research, as barring some sort of economic or natural disaster, ethanol production would never come to an immediate halt.

The RFA press release quoted one of the academics involved with the study:

“The US now obtains at least ten percent of its gasoline from ethanol,” said Professor Hayes. “The ramp up in this industry has been very fast and as a result there have been significant and measurable impacts on  gasoline prices, particularly in regions of the country where ethanol use is greatest. These impacts have grown as the industry has expanded and are largest in 2010.  A secondary impact of this ethanol expansion is that it has substituted for an expansion and modernization of US oil refining capacity that would otherwise have been needed.

His comment here kind of acknowledges that absent ethanol, gasoline wouldn’t be whatever percent higher, as refining capacity is not a fixed variable.

From here, we take it over to the folks at the Institute for Energy Research who spent a long time looking at this study. Their conclusion:

The recent Iowa State study claiming that ethanol production has suppressed the growth in gasoline prices is very misleading. It takes for granted the current refinery capacity and other infrastructure that industry uses to deliver gasoline to motorists, without realizing that federal policies over the years have distorted the development of these markets. Ethanol only survives in the market place at its current levels because it is propped up by artificial mandates and preferential tax treatment.

The regression analysis of the Iowa study doesn’t accurately capture the timeline that would have occurred had the free market been allowed to operate. Of course a sudden disappearance of all ethanol would cause a bigger price spike in the Midwest than in the East Coast. That’s because the artificial federal support has displaced the development of oil-based gasoline delivery in the Midwest more than in other regions. The fact still remains that ethanol (at its current market share) is very inefficient. Taxpayers and consumers would be richer if the government dropped its support programs for it.

Yep.