In Defense of Ethanol
December 3, 2010
Recent articles in the Wall Street Journal and Chicago Tribune have taken to lambasting ethanol, in light of former Vice President Al Gore’s statement in Greece that he no longer supports first-generation ethanol subsidies. The sub-headline in the WSJ article, in fact, says the ethanol industry ‘serves no useful purpose’; the Tribune article calls the industry “Illinois’ and possibly the nation’s most gluttonous corporate freeloader,” and says “spending billions of taxpayers’ and consumers’ dollars on ethanol [is] at best a costly crapshoot.”
These statements make it appear that burning ethanol is equivalent to burning money. Nothing could be further from the truth. Ethanol production helps the economy, the environment, and is vital to national security. Let’s examine some facts.
According to a study published in the Journal of Agrobiotechnology Management & Economics, the Volumetric Ethanol Excise Tax Credit (VEETC) and the ethanol import tariff, which both articles take to task, is responsible for between 56,000 and 112,000 American jobs. The study says the future of the biofuels industry—and those jobs—depend on the extension of the VEETC and import tariff, both of which expire at the end of this month.
An analysis by AUS Consultants shows the elimination of VEETC would result in consumers paying $3 billion more in higher gasoline costs, including $500 million in federal gas taxes, household income falling by $2.9 billion, and 120,600 more Americans having to file for unemployment. Another study shows the American ethanol industry has generated an estimated $33.4 billion in federal tax revenues and nearly $17 billion in state and local tax revenues since 1978 – a 5 to 1 return on investment of the VEETC.
Doesn’t sound much like a costly crapshoot, does it?
If more evidence is required that ethanol “serves a useful purpose,” we can look at a study done by economist Dr. Donis Petersan which shows that a 100 million gallon-per-year ethanol plant results in:
•$70 million to the local economy during construction
•Expansion of the local economic base by $233 million each year
•45 direct jobs, plus 101 indirect jobs throughout the area
•Household income raised by $7.9 million annually.
In Illinois alone, more than half of the state’s 14 ethanol plants produce 100 million gallons or more per year. In fact, the average plant output in Illinois is 119 million gallons per year. That means, in addition to the approximately 1,100 people directly employed by those 14 plants, with a 45/101 direct-to-indirect jobs ratio, an additional nearly 2,500 Illinois jobs exist because of the ethanol industry.
I would suggest 120,600 Americans nationwide who have jobs because of ethanol would beg to differ that ethanol ‘serves no useful purpose.’
But for a moment, let’s ignore ethanol’s importance to the economy. Let’s pretend instead of a positive, it’s at best a neutral. Even in that light, we can consider ethanol a strong investment in our national security.
It’s a simple equation—more domestic ethanol equals less dependence upon foreign oil. According to the Oil and Gas Journal, all U.S. oil companies combined control less than 10% of the world’s oil reserves, and the world’s ten largest oil and natural gas companies are 100% owned by foreign governments. Most of that oil comes from the Middle East, and it’s no secret that many of those governments don’t like the United States very much. That doesn’t help national security, being dependent upon countries that aren’t our friends. Factor in that, according to the Department of Energy/Energy Information Administration, the U.S. is going to need 6-10% more energy in the next 20 years, and you’re talking even more dependence upon foreign oil if we don’t produce it domestically.
When it comes to dependence upon the Middle East, former Central Intelligence Agency Director James Woolsey told an ethanol seminar, “Under current circumstances, we cannot avoid being there. We have to be there. But over the long run, it is the purest of folly to assume that problems, such as the proliferation of weapons of mass destruction and terrorism in that part of the world, in part funded by oil money, are somehow magically going to go away.”
Talk about prescient. Woolsey made that statement in 1998.
So when you factor in the role ethanol plays in national security, now and in the future, and the impact it has on jobs and the economy, it’s difficult to see why these articles would so flippantly dismiss the ethanol industry as a useless, gluttonous freeloader, especially in the face of a national public outcry for renewable energy. Let us hope the ethanol tax credits and import tariffs are extended, so that our economy and national security do not suffer in the long run.