Locking in Corn Ethanol Locks Out Alternatives

Proposals by the corn ethanol industry to have taxpayers subsidize construction of huge pipelines and specialized gasoline pumps and car engines designed to use large amounts of its product could cost taxpayers more than $9 billion – including increased consumer costs and federal funding of grants and assurances of loan guarantees – and would lock the nation into energy policies that are neither economically nor environmentally viable.

Environmental Working Group analyzed the proposal advanced by the corn ethanol industry after it was stymied in its bid to win a multi-year extension of the tax subsidy that pays oil companies to blend ethanol with gasoline. Under the industry proposal, the government would issue taxpayer-backed loan guarantees to support construction of pipelines over thousands of miles as well as special gasoline pumps and cars designed to use higher percentages of corn ethanol.

EWG’s analysis shows that the corn ethanol infrastructure proposal would simply perpetuate policies that have failed to produce a viable, self-sustaining energy alternative or to make a meaningful dent in the nation’s dependence on imported fossil fuels.

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Since 2005, American taxpayers have paid more than $23 billion in tax credits to hugely profitable oil companies to blend corn ethanol with gasoline. Independent analysts, including the Congressional Budget Office (CBO) and the Government Accountability Office (GAO), have both concluded that this Volumetric Ethanol Excise Tax Credit (VEETC) is unnecessary and duplicative, since oil companies are already required to use an increasing amount of ethanol under the Renewable Fuel Standard (RFS) provisions of the 2007 energy bill.

Growth Energy, an ethanol lobbying group, implies that its “Fueling Freedom” proposal would not add to the deficit because it would simply shift what taxpayers are already spending on VEETC to infrastructure support. However, EWG’s analysis shows that taxpayers could be on the hook for more than $9 billion for blender pumps, flex-fuel vehicles and a pipeline project that is likely to fail. Because the 45 cent-per-gallon VEETC tax credit is set to expire at the end of 2011, that expense would increase the federal deficit unless the subsidies were offset by spending cuts or tax increases. There are no new offsets available from VEETC after this year to pay for the loan guarantees and other subsidies the ”Fueling Freedom” plan envisions.

Over the last decade, corn ethanol has contributed to increased food prices, conversion of environmentally-sensitive land into monoculture crop cultivation and has barely dented our dependence on fossil fuels. The “Fueling Freedom” plan would extend this record of economic futility and social and environmental harm. In summary, the likely consequences include:

1. Cost to Taxpayers: Growth Energy has proposed that American taxpayers cover 80 percent of the cost of building ethanol pipelines through loan guarantees. The Department of Energy (DOE) found that Growth Energy’s proposal for a pipeline from Iowa, the largest corn ethanol producing state, to New Jersey would cost $7.7 billion in total, or $4.5 million per mile.[1]

In addition, Growth Energy called for loans, grants or other taxpayer funding to install blender pumps that dispense higher blends of ethanol and for mandates requiring production of flex-fuel vehicles that can use up to 85 percent ethanol fuel (E85) at privately- or corporate-owned gas stations. If the industry gets its wish, consumers would pay about $2 billion to install 200,000 new blender pumps.[2] Under a flex-fuel mandate, auto manufacturers would pass about $1.2 billion in costs on to consumers purchasing new vehicles.[3]

2. Locking in Corn Ethanol: The “Fueling Freedom” subsidy proposal is not only a waste of scarce taxpayer dollars but also promises to lock the nation into dependence on the least efficient and most environmentally destructive biofuels – ethanol produced from corn grain or corn stover (crop residue) – and to slow the adoption of more desirable cellulosic options. The route of the proposed pipeline runs through traditional corn-growing regions, but only 7 percent of existing or proposed cellulosic or advanced biofuel plants are near it.

Corn ethanol production has already reached 13.2 billion gallons per year, just 1.8 billion gallons shy of the 2015 RFS mandate of 15 billion gallons. The corn ethanol infrastructure projects would promote corn ethanol use well in excess of the RFS mandate limiting production of potentially more sustainable biofuels – the supposed objective of the RFS – to a trickle.

Corn ethanol is not a sustainable solution to long-term energy needs. Other options, such as the drop-in fuels recommended by the Interagency Biofuels Task Force, do not require special infrastructure and would be less dependent on government support.

3. Financial and Environmental Feasibility: The DOE analysis essentially concluded that ethanol pipelines are not economically or environmentally feasible. DOE found that ethanol transported via the proposed pipeline would exceed East Coast demand by 1.3 billion gallons a year. Producing this much ethanol would require the entire annual corn crop of Nebraska, thesecond-highest corn producing state. Since ethanol is more corrosive than regular gasoline, it cannot be shipped via existing pipelines or stored and pumped in the existing fuel infrastructure. Even in new storage tanks, the risk of the fuel separating while stored is greater, increasing the danger of leaks that would threaten local water supplies.

DOE found that installing the proposed pipeline is only financially feasible with significant government support. Since taxpayers would insure 80 percent of project costs, they could lose more than $6 billion if the proposed $7.7 billion Iowa-to-New Jersey pipeline failed. The industry, meanwhile, is requesting subsidies for several other pipelines.

4. Locking Out Farmers: The proposed pipeline would pass near about half of the 27 ethanol plants operated by POET LLC, the world’s largest ethanol producer. Only 35 percent of locally- or farmer-owned ethanol facilities reside in states along the proposed pipeline route. Increasingly, large corporations dominate corn ethanol production. The share of ethanol produced by farmer- or locally-owned plants has fallen from 40 percent in 2006 to just 18 percent today.

Conclusion

The “Fueling Freedom” infrastructure proposal simply represents additional taxpayer spending to prop up a first-generation biofuel that has been unable to survive on its own. Pouring more money into a poor biofuel choice, instead of accelerating research and development of truly sustainable biofuels, is corporate welfare masquerading as energy policy.