See here, and here.

A few things:

(1) Many of the groups arguing against the ethanol tax cuts are also in favor of eliminating tax subsidies to oil companies. (Two wrongs don’t make a right)

(2) Both blogs disingenuously references studies that have calculated global fossil fuel subsidies, presumably so they can drop the large $500 billion number. This number is useless — the U.S. doesn’t control foreign energy tax policy, and using foreign tax policies as a justification for further subsidizing domestic renewable energy is dubious.

(3) The ethanol industry ignores the fact that the world receives a miniscule amount of energy from renewable sources compared to fossil fuels. If the subsidy amounts were equal, the renewable industry would come out far ahead on subsidies per unit of energy basis.

Furthermore, some of the tax expenditures received by oil companies exist to prevent double taxation. If these weren’t in place, these companies would be paying taxes twice, on income earned abroad taxed by the U.S. government. It is also worth noting that these dual capacity tax credits are general tax provisions that do not apply to just the fossil fuel industry — repealing these laws would put the U.S. at a competitive disadvantage. (Note: I have seen this claim disputed by certain groups, insisting that these oil companies are not paying income tax abroad, see here. The specific amount of subsidies the oil industry receives isn’t really important to the point I’m making.)

The renewable fuel industry doesn’t benefit from many of these because biofuel production facilities are located in the United States (which the biofuel industry doesn’t hesitate to remind us).

According to a report by the National Taxpayers Union, future subsidies for renewable energy sources will be much larger than subsidies received by the oil and gas industry. This (I believe this assumes that most tax credits will remain in place) is because of mandated usage of biofuels is expected to increase.

The numbers above, from a report compiled by the Joint Tax Committee, calculate an average of $12.5 billion in subsidies for the renewable industry, and $0.9 billion for oil and gas. Even if the amounts are much closer, the renewable industry comes out way ahead on a per unit basis.

The blogger writes:

Velasco is right when he says that “competition works.” But we can only compete in a fair and open market where consumers have access to all fuels. Redirecting current U.S. government supports to the build out of blender pumps and flex fuel vehicles will enable consumers to choose an alternative fuel at the pump. With the infrastructure is in place, government supports for ethanol become less necessary.

These are curious definitions of “competition,” and “open market.”

Imagine I were to bake some bread that consumers didn’t enjoy as much as I had hoped.

(1) Then I took advantage of a government law which required consumers to include my bread in about 10-15 percent of their total bread consumption per year.

(2) Then I convinced the government to shell out money for each loaf of bread I produced to encourage grocers to stock my bread.

(3) And I convinced the government to forbid imports from foreign companies who bake bread similar to mine at a lower cost.

(4) Now I want the government to spend money making it easier for me to get my bread to its final sale point.

After all of this, finally my bread can compete fairly with other breads on the market. See how that works? Now replace bread with ethanol and grocers with gasoline stations. This is the ethanol industry.

The ethanol industry benefits from the Renewable Fuel Standard, which requires approximately 10 billion gallons of renewable fuels to be blended into our gasoline each year. They benefit from a tax credit received by the gasoline blenders for each gallon of ethanol blended into our fuel supply. They also benefit from a tariff on foreign ethanol.

And now, in the name of competition they have asked for continued support to pay for infrastructure to encourage the sale of ethanol in gasoline stations. They have suggested mandating, in their Fueling Freedom Plan, that all new cars be made flex-fuel compatible so they can run on E85 (85 percent ethanol, 15 percent gasoline). They then make the bold claim that the increased cost from installing E85 compatible engines will fall entirely on car manufacturers and not at all on consumers. All while sticking their hands in their ears and yelling loudly about supporting competition.

Now, the blogger is right (in one sense) to say that the ethanol industry is being restricted by the E10 blend cap. They are hoping that the EPA will lift this cap to E15 this fall. And it is a curious paradox because the government is mandating that we use all these renewable fuels but the EPA might not allow enough ethanol to be blended into our fuel supply to meet this mandate.

However, asserting that Growth Energy supports any form of competition or market forces is laughable. And implying that government is holding back their industry while ignoring the fact that other government laws support a huge percentage of their industry is dishonest. If the Energy Act of 2007 didn’t require billions of gallons of ethanol to be blended into our fuel supply, consumers wouldn’t be choosing high percentage blends of ethanol. Ethanol would likely remain as an octane booster and in low percentages (under 10 percent) per each gallon of gasoline.

An Iowa State University agricultural economist who is famous for criticizing the ethanol fuel industry recently made his third appearance in a row at the annual North Dakota Grain Dealers convention. The entertaining economist, Dave Swenson, says he has no idea whether ethanol will be around in another 10 years, but technological feasibility doesn’t necessarily mean economic feasibility, and economic feasibility doesn’t necessarily mean environmental, political or social feasibility. “Politics often leads to sub-optimal programs and policies,” Swenson says. While the industry has been very beneficial for rural capital investment, Swenson continues to wonder “what kind of productivity are we adding to our rural space?” A specialist in rural economic development, Swenson measures this in rural jobs and notes that while ethanol plants offer a few higher-paying engineering jobs, they also displace larger numbers of workers if the grain were used as livestock feed.”

“The Bureau of Labor Statistics reported that the Consumer Price Index fell by a seasonally adjusted 0.7 percent in December, its third consecutive monthly decline, after sliding 1.7 percent in November. The so-called core rate, which excludes volatile food and energy costs, was unchanged.

“For all of 2008, consumer prices grew just 0.1 percent while the core rate rose 1.8 percent, the Labor Department reported.”

The Times article added that, “Economists have warned that prices will probably be flat or continue falling in 2009 as the recession drags on and lower energy costs work their way through the ladder of production.”

More specifically with respect to food, Friday’s price report indicated that, “The food and beverages index was virtually unchanged in December, as increases in the indexes for food away from home and alcoholic beverages offset a 0.4 percent decline in the food at home index.

Within food at home, the indexes for three of the six major grocery store food groups declined. The fruits and vegetables index declined 2.4 percent in December, the fourth consecutive decrease, with fresh vegetables down 4.4 percent. The index for dairy and related products turned down in December, falling 0.9 percent after rising 0.4 percent in November. For the year, the indexes for fruits and vegetables and for dairy and related products rose 3.4 percent and 2.7 percent, respectively. The index for meats, poultry, fish and eggs declined 0.5 percent in December, but was up 5.1 percent for the year. The December decrease was driven by a 6.6 percent decline in the index for eggs. The indexes for cereals and bakery products and for other food at home both increased in December. The former index rose 0.3 percent in December and posted an 11.7 percent 12 month increase, while the latter climbed 0.6 percent and was up 9.3 percent for the year. The index for nonalcoholic beverages was virtually unchanged in December and has increased 5.9 percent since December 2007. The index for food away from home advanced 0.3 percent in December while the alcoholic beverages index increased 0.6 percent.”

WASHINGTON, January 8, 2009 - As Congress and the incoming Obama administration plan the nation’s next major investments in green energy, they need to take a hard, clear-eyed look at Department of Energy data documenting corn-based ethanol’s stranglehold on federal renewable energy tax credits and subsidies.

An Environmental Working Group (EWG) report released today uses data from a little noticed analysis buried in an April 2008 report from the federal Energy Information Administration (EIA). The information unearthed by EWG shows that solar, wind and other renewable energy sources have struggled to gain significant market share with modest federal support. Meanwhile, corn-based ethanol has accounted for fully three-quarters of the tax benefits and two-thirds of all federal subsidies allotted for renewable energy sources in 2007.

The corn-based ethanol industry received $3 billion in tax credits in 2007, more than four times the $690 million in credits available to companies trying to expand all other forms of renewable energy, including solar, wind and geothermal power.

“With America facing an exploding federal deficit and the crisis of climate change,” report author and EWG Midwest Vice President Craig Cox said, “it defies common sense to continue to lavish billions of tax dollars on corn-based ethanol, a fuel that has failed to fulfill its promises at every turn.”

“Corn-based ethanol production, spurred by federal subsidies and mandates, is polluting our nation’s water, eroding our soil and plowing up precious wildlife habitat — and worst of all is likely contributing to global warming,” Cox said. “As the polluting ethanol industry gets fat at taxpayer expense, proven clean technologies such as solar, wind and geothermal are fighting for support. America needs a truly renewable energy portfolio, and the evidence is mounting that corn-based ethanol will not get us where we need to go.”

Go here for the full report - http://www.ewg.org/node/27498

# # #

EWG is a nonprofit research organization based in Washington, DC that uses the power of information to protect human health and the environment. EWG’s farm subsidy database and reports and analysis on the impact modern agriculture has on the environment can be found at www.mulchblog.com

This is proof that biofuels have reached the level of mania. Like coals to New Castle, we’re now importing vegetable oil to the Middle East to make biodiesel

United Arab Emirates to Host Region’s First Biodiesel Plant

Dubai: The first UAE-based biodiesel plant in the GCC region will produce 3 million gallons annually of environmentally-friendlier diesel to power vehicles, drastically reducing greenhouse gas emission due to its less toxic content, by next year.

Biodiesel is made from a variety of organic sources such as vegetable oils, inedible oils and other biomass and can be blended with petrodiesel by up to 20 per cent for use in vehicles without any alteration to the engine.

Constant supply

Emirates Biodiesel LLC (EmBio) will establish the first constant supply of commercial grade biodiesel in the UAE and the GCC countries. The plant will be located in Al Ain Industrial City.

Karim Aly, founder and executive director of EmBio describes the company as a national initiative established to support the GCC’s increasing energy demand and mounting pressure on the environment.

Embio will use only inedible oils as the raw material, also called feedstock, as opposed to diverting edible crops to satisfy energy demands, said Aly. “Our aim is to highlight the true environmental as well as economic benefits of biodiesel,” he said.

The EmBio facility is planned to be operational by end of 2009. It will be designed to process multi-feedstock oils for the production of biodiesel.

“We will be focusing largely on waste vegetable oil as feedstock; discarded oils which are derived from crops harvested for human consumption as the primary purpose. Once utilised, the waste oils are then channelled to EmBio.”

“At this stage, we have not yet initiated any proprietary projects for cultivation of feedstock crops. However, if and when we do, we will strategically select inedible crops which are capable of being grown on arid land - therefore not cannibalising on any fertile agricultural soil that may otherwise be used for harvesting food crops,” said Aly.

Buoyant

“As global demand is set to remain buoyant on the back of sustained demand from emerging economies as well as the growing consensus to diversify global energy pools, EmBio will also explore supplying other markets in the future,” said Aly.

Many vehicle companies with models that can use biodiesel include Audi, BMW, Chevrolet, DaimlerChrysler, Ford, General Motors, Isuzu, Land Rover, Mazda, Mercedes, Mitsubishi, Nissan, Peugeot, Saab, Toyota, Volkswagen and Volvo.

Like right now, the industry is pushing EPA to sign off on higher blends of ethanol into gasoline. Currently the cap is 10 percent.

Why do they want higher blends approved? Simple. Ethanol is more expensive than gasoline right now.

According to the America Coalition for Ethanol, for December 3, 2008, the average rack price - or wholesale price - of ethanol in Nebraska is $1.81 per gallon. In South Dakota it is $1.80. That is equal to the national average RETAIL price of gasoline released by the US Department of Energy on December 1, 2008.

On the futures markets, … ethanol opened trading today at $1.53/gal, while RBOB Gasoline, the reformulated gasoline with which ethanol is mixed, opened trading today at $1.01/gal.

Unless they get higher blends mandated, … gas prices will remain low.

“VeraSun Energy values the relationships with our corn suppliers and recognizes their vital role to our business. We continue to work with suppliers while we pursue long-term financing.

The Company has paid or will pay for substantially all pre-petition corn delivered after Oct. 11, 2008, and post-petition corn delivered after Oct. 31, 2008. The U.S. Bankruptcy Code precludes payment for goods delivered before Oct. 11, 2008. This has negatively impacted approximately 10 of VeraSun’s corn producers with balances totaling approximately $360,000 for less than 100,000 bushels. VeraSun has paid more than $9 million in November for corn delivered prior to Oct. 31, 2008.

Unfortunately, the Company will need to reject some corn contracts for delivery through Dec. 31, 2008 at our Janesville and Welcome, Minn., facilities due to the delayed startups. Other contracts may need to be rejected or renegotiated as we continue to work through them on an individual basis.

The Company has also temporarily ceased receiving corn and processing at certain facilities while we seek to secure additional financing. VeraSun appreciates the loyalty of our corn suppliers and their willingness to continue to work with us through the reorganization process.”

RFA ASKS INDY RACING LEAGUE TO RECONSIDER BRAZIL ETHANOL MARKETING AGREEMENT

Earlier this week, the Indy Racing League (IRL) announced it was partnering with Brazilian trade promotion agency APEX-Brazil, making the agency the official ethanol supplier to the IndyCar Series. The news appeared to be met with little fanfare, but now, the U.S.’ largest ethanol trade group is urging IRL to reconsider its decision and instead have the race cars run on domestically produced ethanol.

The multi-year deal names APEX-Brazil an official partner of the Indy Racing League and the Indianapolis 500, beginning with the 2009 season, and includes cooperation from UNICA, the Brazilian Sugarcane Industry Association, to identify those interested in supplying ethanol to the series.

According to IRL, they will need 120,000 gallons of E100 for the IndyCar series, 40,000 gallons of E85 for the Firestone Indy Lights and 50,000 gallons of biodiesel for support/transport each year.

“On behalf of America’s ethanol producers, I want to express my deep displeasure in the Indy Racing League’s decision to abandon homegrown ethanol as the league’s official fuel. How can you run the Indianapolis 500, a race so imbedded in the culture of this nation, on an imported fuel?” Renewable Fuels Association President Bob Dinneen wrote this morning to Terry Angstadt, president of IRL’s commercial division.

“For almost 100 years, the Indianapolis 500 has been a showcase for cutting edge vehicle technology. Held on Memorial Day, it has also come to be a time-honored event that serves to thoughtfully pay tribute to those Americans who gave their lives protecting our freedoms. The decision to bypass the more than 180 ethanol biorefineries across our country in favor of a tanker ship from Sao Paulo to be the official supplier of fuel for the IRL is an affront to America’s farmers who have worked to enhance economic opportunities for rural communities and all Americans who have fought and are fighting for our energy independence,” Dinneen continued.

IRL has made an exception to allow the Iowa Corn 250, held in June, to run on U.S.-produced ethanol, Dinneen noted. “This simply underscores the fact that American ethanol is available if the league is committed to supporting a homegrown energy source….On behalf of America’s ethanol producers, I strongly urge the IRL to reconsider its decision. At a minimum, you should use America’s homegrown renewable fuel to power the Indianapolis 500. As in Iowa, I am quite certain that the network of ethanol producers in the state of Indiana stand at the ready to supply the race with the fuel it needs,” he added.

However, IRL spokesman John Griffin said all the league is doing is switching marketing partners from EPIC (Ethanol Promotion and Information Council) to APEX. “It is business as usual for us in the immediate future,” he said. In fact, UNICA said it initially plans to partner with a U.S.-based ethanol company to supply the IndyCar Series with corn-based ethanol.

IRL is “committed to its deal with APEX and are looking at this as [support for] ethanol, not sugarcane, not corn and not cellulosic-based ethanol,” Griffin said. “In all likelihood, we’ll be using American ethanol next year,” he added. Details for where APEX and UNICA would be getting their ethanol from in subsequent years hadn’t been determined yet, he noted.

-Rachel Gantz, rgantz@opisnet.com

Copyright, Oil Price Information Service

Scott Irwin says agriculture’s fortunes are now tethered more to ethanol than food, making crop growers vulnerable to sharp price swings at filling stations rather than the typically slower cost shifts at grocery stores.

“We’re just experiencing the full brunt of this new source of volatility,” said Irwin, a professor of agricultural and consumer economics. “When food prices were the main trigger, recessionary impacts were much less direct and much more gradual. Now, there’s this new connection through energy costs that immediately gets translated to agriculture.”

Energy demand has sagged amid a global economic meltdown, netting sharply lower prices for crude oil, gasoline and ethanol, a corn-based fuel additive, he said. That, in turn, reduced the amount ethanol producers can pay for corn and still break even, pulling down the market for both corn and other grains that have ridden its coattails since the ethanol boom took hold in 2006.

“The same thing that drove prices up is driving them back down,” said Irwin, who co-wrote a report with economist Darrel Good that is among five by agricultural and consumer economics faculty members on how the financial crisis affects farmers.

Corn prices climbed to nearly $8 a bushel in futures markets this summer amid strong global demand that pushed gasoline to almost $4 a gallon. But pump prices have since tumbled to nearly $2 a gallon as a credit crisis and looming recession put the brakes on driving.

Irwin says corn prices have mirrored that slide, falling to about $4 a bushel. He predicts prices will likely hover there until the economy rebounds from a recession that could be the nation’s deepest since World War II.

“Over the next couple of years, with normal weather around the world, I think we’ll see corn prices ranging between $3.50 and $4 a bushel, closer to the low end with good weather and the high end with bad,” he said. “But with a weather disaster, prices could easily spike to $5 or $6 again.”

Despite the dramatic slide, Irwin says corn prices remain well ahead of the $2.42 a bushel average from 1973 to 2006, when ethanol demand paved the way for two of the most profitable years ever for grain farmers.

“Even if we settle in at $3.50 a bushel for corn, that’s still nearly 50 percent higher than it was for 30 years,” he said.

Irwin says 2008 income will vary widely depending on whether growers locked in prices before markets began turning downward in July. Farmers who sold their crop before the slide could again see record earnings, while those who didn’t might manage small profits or just break even.

But he predicted better-than-expected profits for livestock farmers, thanks to lower feed costs as ethanol scaled down grain prices.

“One of the really interesting things that has happened in the last month-and-a-half is how the relative fortunes of crop and livestock producers have reversed at head-snapping speed,” Irwin said.

Irwin’s report is part of a five-part package developed by U. of I. economists to guide farmers through the recent financial meltdown. Other topics include an analysis of short-term credit, crop insurance, and land rental and lease negotiations.