Back off on ethanol. Let markets work.

(An editorial published by Pioneer Press)

We love ethanol more as a political issue than as an additive to gasoline. An anti-ethanol U.S. Senate vote last month reminds us what a potent mixture it is.

On June 16, the Senate voted 73-27 to end a federal tax break that subsidizes ethanol production. It may also take aim at a tariff that protects the U.S. ethanol industry.

President Obama supports the subsidies, so they will likely survive for now. But the vote, coming in the Democratically controlled Senate, suggests that ethanol subsidies have lost support.

Building and subsidizing Minnesota’s corn-based ethanol industry has been Minnesota’s state policy for two decades. The state added its own benefits to the federal subsidies and – most important – required its use through an ethanol mandate.

Former Republican Gov. Tim Pawlenty, now a presidential candidate, was an ethanol supporter, and even signed off on increasing the percentage of the ethanol mandate from 10 percent to 20 percent, effective in 2013.

As a presidential candidate, Pawlenty opposes ethanol subsides. That’s because it’s a tough issue – the reason we like it.

The subsidies and the mandate have created an industry in rural Minnesota – 21 production plants, a capacity of more than 1 billion gallons, and a strong demand for corn. But they put government squarely in the marketplace, creating demand by requiring its use. The net environmental benefits of ethanol are in dispute and its effect on prices of food and animal feed has raised concerns.

Supporters believe “E10” (a 10 percent blend in gasoline) and “E20,” once it is implemented, will strengthen the state’s industry and stimulate development in “cellulosic” ethanol – fuel made from grasses or nonedible parts of plants.

They argue that U.S.-based renewable fuel reduces our need for imported oil, is cheaper than gasoline and has helped reduce tailpipe pollution.

There were understandable reasons for launching the ethanol industry in Minnesota. There are equally good reasons, now that the industry is established and state and federal budgets are in the red, for ratcheting back grants and tax breaks. Some Minnesota supports for the industry have already ended.

Liberals like Sen. Diane Feinstein of California joined with conservatives like Sen. Tom Coburn of Oklahoma in the Senate vote. Ethanol-state senators, including Sen. Amy Klobuchar, D-Minn., and Sen. John Thune, R-S.D., want to divert some of the tax subsidies toward developing cellulosic, “next-stage” ethanol. They also want more funding for “flex-fuel” pumps that use higher-percentage mixes of ethanol.

At root is the question of government’s role in the private business of farming and the processing of agricultural products.

Minnesota has cast its lot with a strong-government approach. As the federal government rethinks its own stance, Minnesota officials would be wise to look again at how our commitment to ethanol squares with fiscal reality, political philosophy and the way markets work best.

Our Take:
The problem is that even without the ethanol program, the federal government is up to its eyeballs in the energy market–billions in breaks for oil, nuclear and electric generation. The strategic petroleum stock pile. Mostly what the federal government is doing is reinforcing our addiction to foreign oil.

The fact is, if we want to move beyond fossil energy we need a strong government approach in favor of renewables, just to undo the harm current government policy already does. Rather than picking winners, future policy should set outcomes. We want energy that’s renewable and that is less carbon intensive than gasoline–balancing those values with what is going to be affordable for the consumer. Cheap transportation energy has been the foundation of our consumer economy.

The existing transportation energy market is a de facto mandate to use oil. Many experts say we have passed the tipping point and that from here on out oil production will decrease. If we leave oil to its own devices and let renewable energy wither on the vine, then the current trend will only intensify–oil prices will rise even while consumption remains flat–to the great detriment of our national economy.

We are truly transfusing America’s economic lifeblood into autocratic regimes: Russia, Iran, Saudi Arabia and Venezuela–this is the largest transfer of wealth in the history of human kind. Exxon’s $10 billion dollar profit per quarter pales in comparison to the riches being amassed by these countries that fundamentally oppose all the values America holds dear.

TR–Teddy Roosevelt–was a Republican with a strong libertarian streak and he saw the value of a strong government approach when it comes to busting monopolies. He saw that the monopolies that had once served to build out national infrastructure–Banking, Timber and Rail barons–and lay a foundation for a strong national economy had become an impediment to both personal freedom and future economic growth.

A rational approach to energy would be to end every last dime of fossil fuel support and put that money into incentives to develop next generation energy. To earn the incentive, the energy should meet the outcomes. Corn ethanol will do fine in such an atmosphere and cellulose ethanol will have room to sprout. Other renewable sources we haven’t thought of yet will come along.

One UC Berkeley scientist has said in an interview on 60 Minutes, the CBS news program, that it will take a trillion dollars to retrofit America’s coal-to-electricity plants in order to make them clean, emission-free power generators. If we continue to prop up fossil energy, that’s the kind of expense we are in for, and frankly, it could break us.

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