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DAVID KRUSE

By Staff | May 9, 2013

The ethanol industry has taken a lot of heat from conservatives over the subsidies the industry received. The primary subsidy, the blenders credit for corn-based ethanol, has gone away as it was always intended. The Renewable Fuels Standard mandates levels of ethanol usage, but has only a modest impact on corn-based ethanol consumption today. The RFS and subsidies are mostly about cellulosic ethanol.

There is much irony in all of this. Why is it that the conservatives never complain about oil subsidies? The petroleum industry has done everything it can legislatively, legally and in the court of public opinion to limit access for ethanol to the fuels markets.

Conservatives who argue that the marketplace should determine ethanol consumption are deluded in believing that there is actually a free market working here. There is not.

The petroleum industry controls distribution and has done everything that it could do legally to dictate the market. They argue that E-15 was not tested enough when it was the most tested motor fuel ever released to the market. The fuel additive MTBE poison was far less tested than E-15 and the petroleum industry expressed no concern because that was their fuel. E-15 has passed far higher standards of testing than any fossil fuel produced by the oil industry. There is also the foreign testing ground as E-25 has been used in all vehicles for many years in Brazil without consequence.

There was far more evidence that weapons of mass destruction existed in Iraq than there is that ethanol is harmful. Ironically, the AAA motor club never expressed any consternation over MTBE poison, but has it in for ethanol. Real conservatives should be blasting the petroleum industry for its control of the market rather than focusing on the ethanol industry, which is trying to get a fair shake with a crack at the market. The federal government covers the cost of new oil wells, but fights the USDA’s plan to install 10,000 blending pumps over the next five years to extend fuel choice to consumers. E-15 is a voluntary fuel. The petroleum industry is pulling out the stops to deny consumers fuel choice and conservatives are defending that.

The most annoying is when I read comments from people who should know better, criticizing ethanol subsidies that no longer exist, who either have no clue that the oil industry is heavily subsidized or have extremely selective ideology only applied to ethanol.

Never have I seen them blast oil subsidies. The oil industry certainly appreciates this one-sided point of view. I think they also reward it. The subsidies received by the oil industry make those subsidies that have gone to ethanol seem like chump change.

The oil subsidies go back decades instead of just a few years. They are ingrained. Since 1913 oil and gas companies have been able to write off an extra five percent of the cost of new wells.

According to the Reuters’ fact box, the current tax code allows medium-sized oil companies to recover 100 percent of the labor, drilling cost and rig time and the “Big 5” oil companies can recover 70 percent in one year.

The oil depletion allowance allows oil companies to take a 15 percent tax deduction per year for the depletion of oil and gas reserves in the ground. Another tax benefit allows oil companies to reduce their income 6 percent from property manufactured, grown, extracted or produced in the U.S. The difference between oil and ethanol subsidies is that oil subsidies have been around for such a long time that they have been baked into permanent tax law, while ethanol subsidies have always required continuing re-authorization. Legislative actions to end $24 billion in oil subsidies got voted down by the same conservative lawmakers who refused to extend the ethanol blenders’ credit. There is total hypocrisy here. Conservatives wail about the hand of big government helping biofuels, but are quiet as church mice about the much government largess doled out to the oil industry. I have no problem with ideology if applied equally, but those that pick on ethanol and not oil are phony practitioners of their principles.

Each year oil companies enjoy between $10 and $52 billion in subsidies from Washington. The lowest credible estimate includes just the regular stuff, tax subsidies.

The $52 billion estimate includes the security services of the U.S. military guarding pipelines and shipping lanes in the Persian Gulf – free to all global oil users, compliments of the U.S. taxpayer. This estimate did not include environmental and health-costs estimated by the Academy of Sciences to be as high as $120 billion annually.

It was ironic that they include discredited indirect land use against ethanol, while the petroleum industry gets a total pass on the comparatively much more significant collateral costs it creates. The oil industry literally spends hundreds of $millions lobbying in Washington and in self-promotion, a significant amount of which has been directed in an anti-ethanol campaign. Instead of investing to comply with the distribution requirements of the RFS, the petroleum industry is spending the money fighting it. This is David vs. Goliath.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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