Ethanol may be a good idea. And it may not be.

Ethanol may be a good idea. And it may not be.

The last place I would look for an intelligent attitude on ethanol is government, state or federal. I read nothing in either the American or the Iowa Constitution suggesting government should have anything at all to do with energy, and our founders got it right.

Let me suggest the free market is the best allocator of goods and services in an economy. When suppliers and consumers of energy meet in a free market, prices and quantities are determined by supply and demand. This arrangement gave America the greatest economy in the history of the world, and it still performs for us on a daily basis.

Most unfortunately, state and national politicians have caved in to special interest lobbies, lobbies that are not working for the common good, but for private gain. By simply eliminating all subsidies and regulations for energy producers (and consumers) of every stripe and style, the marketplace will quickly determine how much ethanol will be produced and what price consumers will have to pay for it. There is no way the government can make that allocation better.

But what about pollution, I hear a voice in the back of the room ask.

You are correct – pollution is an externality producers do not have to take into their financial considerations, because the negative effects land on others.

The correct way to deal with an externality is to either make it easy for the people who are negatively impacted to sue for damages in a civil court, or to tax it. That’s why class action suits are allowed, and that’s why a carbon tax is the most efficient and effective way to reduce carbon emissions. If you don’t believe me, there’s a Nobel Prize winner you can talk to.

Government should never pick winners and losers, it should remain neutral. To do otherwise creates economic distortions that profit a few, but hurt everyone else.

Ethanol is no exception.

7 Responses

  1. I promote the independence and self-sustainability of Iowa. Ethanol contributes to these goals by providing good jobs, stronger supply chains by promoting farm to factory to consumer options, and reduced reliance on interstate and international dependence. By lifting the subsidy, these jobs will decline sending skilled workers after better opportunities often outside of Iowa which deteriorates every facet of rural Iowa communities.

    1. Why is it the government’s job or business to steal my tax dollars, and then hand them over to huge corporations. If the ethanol sector cant attract workers or remain profitable without government intervention, then its not a good fit. Also, let me remind you, that Ethanol is a crappy fuel, it is highly hygroscopic and a strong solvent, meaning that it pulls water from the atmosphere into your tank, and on many older vehicles it can damage the seals and o rings in the fuel system. Washington politicians dont care about this because they dont drive older vehicles or even pay for their transportation.

    2. The government should not prop up any business or industry unless it is a matter of national security to do so. Subsidies stifle innovation and make it artificially more difficult for non-subsidized businesses to compete. If we subsidized all businesses that couldn’t make it on their own we’d live in a world of horse-drawn buggy builders, floppy disk manufacturers, terrible restaurants, and other outdated or doomed-to-fail businesses getting by on welfare. I would argue that subsidizing zero-carbon energy (solar panels, windmills, nuclear) could be argued for because climate change is a threat to national security. Lack of cheap ethanol is not — ethanol for fuel falls into the doomed-to-fail category, but Grassley keeps it going.

  2. The government has always determined winners and losers through the tax code. My CPA said you can print the tax code out and not be able to shoot a AR-15 bullet through it.

  3. Will this logic also apply to wind turbines and solar panels? Will government interference and subsidies discontinue? They should not be given subsidies and then pay reduced property taxes capped out at 30% of build value after 6 years. Also, the huge push from current politicians to essentially make it easy for wind turbines to be built is sickening, especially when a resident that does not own all the land around them have to deal with the consequences.

    1. I am against all government interference in the energy markets, including subsidies and tax credits which serve no purpose other than distorting what should be a free market in energy. Should companies that produce, transport, consume, etc., energy create externalities which negatively impact third parties these can best be dealt with by the judicial system through lawsuits, voluntary arrangements mutually agreed upon, or in some cases government action. As described in my Ethanol issue page a carbon tax, with universal energy rebates (UEB), is the preferred method of addressing excess carbon dioxide in the atmosphere, should we decide that is an important thing to do.

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