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Sasha Stashwick’s Blog

The proof is in the profits: it's time to end corn ethanol subsidies

Sasha Stashwick

Posted November 2, 2010 in Moving Beyond Oil, Solving Global Warming

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When Valero Energy Corporation, the country’s largest independent oil refiner and top corn ethanol producer, told investors last summer that it was going to be a good year, they weren’t kidding. An article in today’s Des Moines Register confirmed just how good a year Valero has had, with the company reporting $139 million in operating profits from its ethanol production facilities in the U.S. for the first three quarters of 2010, up from $71 million last year. And Valero is not alone. A recent Bloomberg article highlighted how even two-year highs in the price of corn, the main feedstock for ethanol production, have not dampened profits across the domestic ethanol industry.

According to the article, healthy profits have been the result of increased ethanol demand, rising prices for dried distillers grains, a byproduct of the fermentation process by which corn is made into ethanol that livestock farmers use as feed, and big declines in the price of natural gas, used to power the ethanol production process. “If you’re not making money in ethanol right now”, Bloomberg quotes a market analyst as saying, “you have a problem with your production process”.

Now let’s be clear. There is absolutely nothing wrong with making profits. What’s wrong is a mature industry like corn ethanol continuing to lobby aggressively for more taxpayer support after three decades of subsidies, with dire warnings of plummeting corn ethanol prices and domestic production levels if tax credits are not extended, at the same time as top ethanol manufacturers continue to report hundreds of millions in profits.

But even Valero knows that corn ethanol tax credits are unnecessary. I blogged in July about how the company’s Executive Vice President for Corporate Development and Strategic Planning, Gene Edwards, boldly went where few in the industry are willing to go, telling investors that removing the VEETC—the Volumetric Ethanol Excise Tax Credit, the government’s largest biofuels incentive, which today pays blender of ethanol $0.45 cents for every gallon of ethanol they blend in with gasoline and will cost taxpayers $6 billion next year alone—would have no impact on ethanol prices or domestic production, and assuring them that they would “not see blending decrease by one barrel” if the tax credit was allowed to expire at year-end.

This was a telling admission at the time from a major industry insider, but industry-wide profits, it seems, speak for themselves. With the Renewable Fuels Standard (RFS) in place, which study after study has found is the primary driver behind domestic corn ethanol production, margins for ethanol production improving on every front, and blending margins already favoring blending ethanol with gasoline, it’s clear that the corn ethanol lobby’s case gets harder and harder to make—at least with a straight face. The proof is in the profits: the time has come to let the wasteful VEETC expire at year-end and for the corn ethanol industry to stand on its own two feet.

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Comments

FarmerJohnNov 2 2010 11:41 AM

Why wouldn't you include oil companies in your article? They receive hundreds of billions of dollars annually in subsidies and are the most profitable businesses in the world, even after paying for numerous oil spills ruining ecosystems and peoples lives across the world. But no, you continue to bash ethanol, an alternative to oil that is benefitting the United States economically and environmentally. I thought your employer was concerned about the environment?

FarmerJohnNov 2 2010 02:50 PM

BP posts $1.8 Billion 3rd quarter profit. The very same company who was to blame for the worlds worst oil spill only a few months back. A company that receives American Subsidies, but the NRDC continues to bash corn ethanol. An industry that has provided hundreds of thousands of job, tax revenues and cleaner environment for the United States. Please don't pat yourself on the back too hard as you continue hinder rural development and continue to support America's dependence on oil.

fthefarmerNov 3 2010 06:40 AM

Corn ethanol is just a hole in the pocket of the taxpayers and serves no real purpose but to satisfy greedy lobbyists.

Kendall LinzeeNov 6 2010 03:41 AM

Now, now, c'mon let's stop acting like war lords. I just heard that all fuel is eventually going to E-15. I have much greater holes in my pocket than a fuel that requires few changes to the car I drive, and burns a heck of a lot cleaner than Hybrid buying, comfy attorney/enviro/researcher, somewhat elitist people are willing to acknowledge. Seriuosly, y'all need to put down yer lap tops, and recalibrate the rack on yer tractor's diesel pump, re program yer Suburu's fuel mapping, or shovel some damn manure once in a while. That being said, I'm a happy CA resident, thanks to my fellow voters getting on with this alternative thing. No more Props peeps, enough alreaqdy. Now that our Government is in N, The tax sub ain't going nowhere, but more hooch is going in every tank eventually. This may work itself out a little ,over a long idling period. And maybe a backroom deal or two ,but big ethanol/oil won't actually write energy policy. This is what we do in this country.
GM got a lot more than subsidy, but hey ,they do make the only 4 cylinder flex-fuel, probably 28 or 29 mpg's highway. Cheaper than a hybrid etc. What I think would be more worthwile is demanding that Auto dealers sell only flex-fuel, as the standard option next to hybrid and diesel. They literally have the same model that would be a flexer in a corn state, that actually has a little no E-85 sign on the tank cap??!? That combined with the NRDC costantly complaining about corn-based, I feel like I've met the platinum / litium Ion lobby. Do you guys have any idea how much copper is in the drive unit of your hybrid.?? And Mitsu etc. wants to mine copper east of Bristol bay?? If you have a 4 cylinder car, I can make it a flex fuel for $400. We have to demand cooperation from the Auto industry. cause your average auto just needs reprogramming to run E-85. Ford sells little efficient deisels every where but here. I trust the NRDC follows science, but what about the science? Are tax dollars future leverage for land use policy? Ag tech, etc.

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Switchboard is the staff blog of the Natural Resources Defense Council, the nation’s most effective environmental group. For more about our work, including in-depth policy documents, action alerts and ways you can contribute, visit NRDC.org.

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