As Ethanol Plants Teeter On The Edge Of Bankruptcy, Government Mandates Could Ride To The Rescue
Red Tail Energy, an ethanol plant here in North Dakota, isn’t doing so hot financially. Thanks to the way the government distorts the fuel markets, ethanol producers were subsidized into creating a glut of ethanol that far outstripped demand. That glut drove down prices, and has a lot of ethanol producers like Red Tail Energy between a rock and a hard place. This little nugget of information tucked away in a Bismarck Tribune article about Red Tail’s plight encompasses the entire fiasco in a nutshell:
[Ethanol lobbyist Matt] Hartwig said two plants with the capability to produce 100 million gallons of ethanol fuel a year recently opened in Iowa.
“We will produce more ethanol in 2009 than we did in 2008,” he said, noting the ethanol industry experienced record growth over the past decade. “But the kind of growth we saw, that’s not necessarily sustainable in any industry in the long term.”
So the ethanol industry is going to produce more ethanol in 2009 than in 2008 despite the fact that prices are rock-bottom and supply is far out-stripping demand. And why would they do such a foolish thing? Because the entire ethanol industry, from subsidies for its production to mandates for its use, is propped up by the government. They aren’t allowed to fail, so they just keep running and pumping their product into a market that largely doesn’t want it.
Obviously, these heavily-subsidized companies are looking for some help from the government. And one thing they want is for the government to increase the amount of ethanol that is required to be blended with traditional gasoline. Again, from the article:
The concerns over the ethanol industry have spilled over into a national debate about whether the Environmental Protection Agency should allow fuel suppliers to increase the amount of ethanol mixed into gasoline from the current 10 percent to 15 percent.
Critics say the move would be a government-induced boon for a failing industry, which has seen an increase in bankruptcies filed this year, including four plants run by subsidiaries of the West Coast’s largest ethanol producer, Pacific Ethanol Inc.
“Allow fuel suppliers to increase the amount of ethanol mixed into gasoline” is a euphemism for the usual “do it or we’ll make you do it’ government approach to the private sector. If the EPA backs off its restriction you’ll see more states mandate additional ethanol use. Which, in turn, will drive up more demand for ethanol.
Not because people actually want it, but because the government has decided that they should want it.
Now, don’t get me wrong. I don’t have anything against ethanol per se. I’m just tired of the “most favored” status the fuel enjoys from the powers that be at the expense of my tax dollars.