Washington, D.C. — The Senate voted overwhelmingly to abolish the 30-year-old subsidy for corn ethanol, a stunning, bipartisan rebuke to an industry whose once-legendary political clout has given way to concerns about the federal deficit and rising food costs.
The 73-27 vote was largely symbolic because the vote came on a bill that is unlikely to become law.
But even supporters in the industry conceded that the existing subsidy is doomed.
What affect on railroads, especially corn belt carriers?
If ethanol producers can be competitive without a government subsidy, they will stay in business. If not, the rails, especially in the corn belt, will lose a lot of revenue. The subsidy was originally justified as a way of helping the ethanol business get started. That reason no longer exists. In addition, it is arguable that ethanol (from corn) production is a net energy loser as well as a contributor to increased food prices.
My guesses: First - No more subsidy for plants built or put into operation after a certain date (“When you’re in a hole, the first thing to do is stop digging !”)
Second: Subsidies for existing plants will be phased out over time. Otherwise, the investment in those plants made in reliance on the subsidies will become “stranded” = irrecoverable, can’t be paid back. That would not be a good thing for the US government - trust in its policies in the future will be greatly diminished - “Fool me once, shame on you; fool me twice, shame on me”. So the grain movements will continue at about their present volume for a while, and then gradually decrease as the plants age and become non-competitive, world grain markets pay more, etc.
“Your mileage may vary.” [swg]
If they eliminate the subsidy, can’t the ethanol producers simply raise their price to compensate for the loss of the subsidy? There need not be a government subsidy for ethanol production if there is a government mandate that forces us to buy ethanol.
Even with a mandate (not so sure about that) the price of gasoline would increase dramatically if it still contained ethanol, to the point that Diesel and electric would become the primary choices for engines.
I would think so. Ethanol is the oxygenate additive to gasoline that is required in certain areas of country, in particular the Northeast. I believe the vast majority of ethanol produced goes for that use.
This is a good lesson about government distortions of the market and resource misallocation. We are long past the point of being able to afford this idiocy.
Mac
A bipartisan group of senators on Tuesday introduced a bill to end the U.S. subsidy for ethanol producers and the tariff on ethanol imports, saying the government can no longer afford to pay the benefits.
http://www.reuters.com/article/2011/05/03/us-usa-ethanol-subsidies-idUSTRE7427SG20110503
Besides the subsidies, there is the ethanol tariff. It is argued that cane sugar ethanol from Latin America would be less expensive than domestic corn ethanol. If tariffs fall and the regulations remain to blend bio fuels to meet air pollution requirements, what affect on railroads?
Will there be shorter hauls from the coasts with more moving by truck?
The biggest looming possible effect on railroads from ethanol is that a mandate will require railroads to burn ethanol as fuel.
Of course the Imported Ethanol would increase the Trade Deficit and likely increase Amazon deforestation.
If I owned one or more I would be seling my ethanol tank cars.
First, it would directly effect cellulosic ethanol and other non-corn sources of ethanol production. Removing the tariff on the importation of foreign ethanol has the potential to cost Americans jobs. Jobs in areas where they are very hard to find. There is more, however I will keep it short.
It is not arguable that ethanol from corn is a net energy loser, it is positive, and has been that way since 2001. Those that publish such reports saying it is negative, have not taken into account modern production processes, and basic farming practices of a majority of corn producers, not a minority which is hardly representative of the industry.
Next, I submit that for all your education, Sir you don’t have any idea about food prices and the effects of corn ethanol production may have upon it. You buy into excuses the Food Industry has provided, which cannot hold water. Did you realize, while the production of ethanol is increased, the supply of corn has also increased?
In the year 2000, there were 2.4 billion metric tons of grain available for uses other than for ethanol. Even with the growth of the ethanol industry, last year there were 2.6 billion metric tons of grain available for uses other than for ethanol. While ethanol does have a minute effect on corn prices, there are far more external reasons for prices set on the market. World shortages comes to mind.
Food producers fail also to admit that they purchase spent grains from ethanol production to feed animals instead of whole grains. The prices of that by-product
Not to mention the jobs Americans have producing, marketing, and distributing ethanol. Or is there an excess of jobs in the areas where ethanol is produced, where it does not make a difference?
Many years ago, the country made a commitment to go ahead and expand the ethanol industry. A major portion of that was the tariff structure on imported product. Now we pull the rug out from under that industry by repealing the tariff. Something which by the way, has nothing at all to do with government spending. Since those lawmakers only targeted the U.S. ethanol industry, and not others who get tariff relief, it tells me there is more to it than just limiting spending.
I find it ironic that Kalmbach wants to keep politics out of the forum, when everything the railroads are, have been and will become in the future is a result of political policies that get played out on multiple levels, concerning where and how railroads can built, what and how the carriers will serve customers, what and how those customers can produce their products. There is nothing that takes place in the rail industry that has not had a political ‘stir stick’ involved in it’s taking place. The Hours of Service Law, Positive Train Control, Tier 1 - 3 Emission Requirements, Ditch Lights, Staggers Act, Unit Train pricing, ICC, STB, FRA; the list goes on and on to be near never ending.
There may not be crying in baseball, but there is politics in railroading.
Since the tariffs that are in place are being removed, raising prices will doom the U.S. industry, inviting more imported ethanol. What does that do to the U.S. producer? His inputs do not go down, his costs and remaining construction liabilities do not go down.
A simple examination of where ethanol is produced, and where the major markets are for their product says one thing. We loose more American jobs, and the government looses more revenue.
An examination of that effect is that the full impact of annual operations of the ethanol industry and spending for new construction as of 2011, generated about $8.4 billion in tax revenue for the federal government. In addition, the industry generated $7.5 billion in additional tax revenue for state and
local governments. With the elimination of the tariff, all that will go overseas, and we will see only a fraction of it. Makes ¢ents to me.
Right, the deforestation in Brazil was my thought, too.
In this morning’s paper there was an editorial that tried to argue that the ethanol subsidy is bad for the environment. Quote: “federal support has created a monoculture in the corn-growing states, which is ecologically unhealthy.” I didn’t buy it. I think the monoculture argument is totally bogus since it applies whether farmers grow corn for food, or for ethanol. American farmers are free to grow genetically diverse corn for ethanol if they want to.
I’ll let the economists do the hard thinking on this one, though. Way too complicated for me. [8D]
You can go on and on, but you needn’t be rude. I have no dog in the hunt on ethanol one way or the other, but given your city of residence, I imagine you do, if only indirectly. It is quite remarkable that folks who oppose subsidies from the government in other domains seem quite able to be a proponent of it for ethanol. You can dismiss the energy research if you wish. The way the pro-ethnol lobby gets around that is to NOT include the BTU’s used to produce the corn in the balance sheet. An odd way of accounting to most folks.
“For example, it is unfair to attribute all the energy
used to grow a bushel of corn and process it into
its value as an energy product (i.e. ethanol).
Ethanol production is a co-product of corn
processing and therefore should only be charged
with the energy that was used to turn it into
ethanol. In addition, the nature of agricultural
commodities is that they are rarely grown for a
specific purpose. That bushel would be grown and
processed into feed as a matter of course.” (from 2009 Ethanol Across America)
An analogy would be an oil company claiming one should not impute the cost of exploring, drilling and extracting oil from the ground in its cost, only the refining.
Pricing? The fact that more corn is produced now is because more acreage is planted in corn because of the ethanol demand. Compare bushel prices now with 2000 in Illinois: 2000 = $1.90 monthly average; 2010 = $3.85 monthly average. Double. I personally see no reason to eliminate the tariff on sugar for ethanol, but free-traders push to eliminate all import tariffs. I’m not one of those. Eliminate the subsidy and see if the ethanol producers can stay in business.
From the start, ethanol from corn has had only one main reason for existing. It was started as a way to find more use for corn, thus raising the demand, and the price for corn in the U.S. Since then, many other stategies have been piggy-backed on to further that cause.
Due to factors in the world supply of oil, ethanol has been championed as an “Amercan made” substitute for gasoline. This goes all the way back to about 1980. Remember the bumper stickers that said “No tanks Iran- I prefer ethanol” ? It’s also been pushed as the natural, home-grown fuel additive- oxygenator(?) that helps reduce pollution, and isn’t as toxic as whatever it replaced. It’s pushed as an energy industry that promotes American jobs and American owners- hard to argue with that.
The net energy loser idea gets kicked around a lot, but I’ve never seen anything that would seem to prove or disprove the point. The most common sound bite heard in my part of the world, is that it takes as much energy to make a gallon of ethanol, as the ethanol provides. Again, I’ve never seen anything written that would seem to prove or disprove that. However, I’d guess, that it takes about as much energy to produce a gallon of gasoline as the gasoline provides. We also don’t have to have troops and aircraft carriers protecting those ethanol fields
First, I am not rude, just making a point based on 11 years of observing the industry.
Next, as far as energy content, many many things come to mind in that research. The production of corn. In one paper, they listed irrigation as an energy input to production. Well the majority of corn is raised without irrigation, enough so that it is an exception, not the rule.
Up next was tillage. Not all farmers till every autumn. Most leave the stubble where it sits to help conserve soil. They still must till it over in the spring to make sure the excess nitrogen in the trash gets into the ground prior to planting beans. Three quarters of the farmers still rotate crops on a yearly basis, it is best practices.
Fertilizer. There are many takes on this, but when a producer has to pay for it, they get creative. One such creativity is the use of manure when planting corn. Yep, good old manure can save a lot of money. And thus goes the energy content of commercially produced fertilzer.
Now we go to plant energy consumption. The research took for an example a wet mill plant. Sorry to say, a majority of plants today use a dry mill process. While a dry mill plant does not have as many co-products as a wet mill, it does it’s job with far less energy. And that is based upon a basic design. There are many plants modified to use coal as an energy source, or trash, or even distilled grains if the need be. One plant in Council Bluffs uses the heat from a neighboring power plan
Rude? Your sarcastic use of “sir” is a form of passive aggressive behavior.
So if the production is so efficient, why does it need a subsidy? You really cannot have it both ways.