Ethanol Bailout; Encouraging the Incompetent to do the Unnecessary.

I have made the point on several occasions in the past that I would have no objection to the ethanol industry if it were a stand alone efficient industry brought into being by consumer demand for the product. If the use of ethanol were in fact due to their ability to produce a cheaper product than gasoline, or a more efficient one thus making a dearer product which pays off the consumer in greater mileage, or even one that those concerned about the environment were prepared to pay more for to meet their green beliefs, it would have a reason for existing.

This is not the case and never has been.

Ethanol is only produced because governments decided that it represented a green alternative to the use of fossil fuels, something the environmentalists themselves have been rejecting for some time. Unfortunately when governments decide something is good for us, they have the power to make it happen, with subsidies, handouts and mandated use of the product. The result has been a disaster for the economy and the environment, with vast areas turned over to ethanol crops and huge resources diverted to its production.

Now they appear to be ready to go into bailout mode as reported in the Wall St. Journal: -

The price of ethanol at the pump has fallen nearly in half in recent months to $1.60 from $2.90 per gallon due to lower commodity prices, and that lower price now barely covers production costs even after accounting for federal subsidies. Three major producers are in or near bankruptcy, including giant VeraSun Energy.

So here they go again back to the taxpayer for help. The Renewable Fuels Association, the industry lobby, is seeking $1 billion in short-term credit from the government to help plants stay in business and up to $50 billion in loan guarantees to finance expansion. The lobby would also like Congress to ease the 10% limit on how much ethanol can be added to gasoline for conventional cars and trucks -- never mind the potential damage to engines from such an unproven mix.

Of course, the ethanol industry wouldn't even exist without the more than $25 billion in taxpayer handouts over the past 20 years. Congress only recently passed energy and farm bills that further greased ethanol production with a 51 cent a gallon tax credit, corn subsidies, plus increasingly stringent biofuel mandates. We were told, as usual, that profitability was just around the corner.

So here we have the situation where an industry which is unable to make a go of it in the real world even with massive handouts from taxpayers are not only asking to be supported further, but is actually asking for even more to expand. In a real economy, an industry that can’t make a go of it either does not get created, or fails with the result that the resources move to something which works. It certainly does not grow bigger.

The failure of the ethanol industry will have massive repercussions for workers, investors, and suppliers who have over the years come to be dependent on it, however it is neither moral nor ethical to ask the taxpayers to dig deep once again for funds to keep it afloat, given that with its past record it should have gone broke shortly after it started. It is a matter of conjecture as to whether the US government will have the moral courage to pull the plug on it. They will probably continue with the policy of encouraging the incompetent to do the unnecessary.