Big Subsidies, Low Consumer Demand

The federal government’s embrace of the ethanol industry is a controversial topic – for good reasons. Environmentalists think that ethanol is bad for the environment in many ways. Fiscal conservatives point out that the industry has benefitted from a federal tax subsidy (which is due to expire at the end of 2011 unless extended). While the industry claims that ethanol promotes “energy independence,” others point out that biofuels cannot possibly replace petroleum. Here are some of the good reasons the federal ethanol program should modified if not eliminated:

Do Consumers Want This Stuff?

The industry claims that motorists would be glad to use higher blends of ethanol if they were more readily available. In fact, there is very little evidence of popular demand for E85.

  • Ethanol has only two-thirds the energy content of gasoline. A vehicle fueled with E85 will get significantly less mileage than it does when fueled with gasoline, requiring the driver to fill up more often. E85 costs 85 percent as much as gasoline despite delivering only 75 percent as much mileage. So it is more expensive and less convenient that gasoline.
  • More than 8 million flex-fuel vehicles are on the road today, according to the U.S. Department of Energy, but very few drivers fill up with E85. Demand is so slack that less than 3,000 of the nation’s 140,000 service stations carry it, according to the web site
  • The ethanol industry’s answer? More subsidies! The industry wants the government to pay for pipelines, storage tanks, blender pumps, and the other facilities the industry needs — so it can make more money by selling ethanol.

Here’s a thought: the industry has made many millions of dollars over the years by operating in a protected, subsidized, mandated industry. So let the industry pay for its own infrastructure. If ethanol really enjoys the popular support the industry claims, then venture capitalists will be happy to finance the infrastructure. No subsidies needed!