Al Gore's Alcohol Problem

The defender of the environment now admits ethanol was a mistake. Will Congress heed his advice and end the corn industry's $7 billion subsidy when it expires this month?

11.30.10 10:43 PM ET

Last week, Al Gore finally admitted the obvious. The former vice president (and winner of the Nobel Peace Prize) who promoted ethanol in his Oscar-winning film, “An Inconvenient Truth,” said that corn ethanol was a “mistake.” He went further, saying that he supported ethanol production because the first presidential primary is in Iowa, which produces more ethanol than any other state: “I had a certain fondness for the farmers in the state of Iowa because I was about to run for president," he said. Gore also said that the “massive subsidies” given to ethanol are not “good policy.”

Gore’s comments are particularly timely given that the ethanol lobby is, once again, trying to extract more subsidies from taxpayers’ wallets. And they are in a hurry to do so because a 45-cents-per-gallon ethanol tax credit expires on December 31. That means they need help from the lame-duck Congress.

In mid-November, the ethanol industry’s main lobby groups, including the Renewable Fuels Association, Growth Energy, and the American Coalition for Ethanol, sent a letter to Congressional leaders urging them to “pass legislation during the lame duck session extending critical ethanol tax incentives that will expire at the end of this year.”

The letter was sent just one day after Gregory Meyer of the Financial Times reported that the U.S. ethanol industry is using those very same tax incentives to maximize profits by exporting–yes, exporting–record amounts of ethanol. Meyer found that during the first nine months of 2010, U.S. ethanol producers exported 251 million gallons of the corn-derived fuel, more than double the volume from the year-earlier period. Among the countries getting American ethanol: Canada, the Netherlands, Saudi Arabia and the United Arab Emirates.

"Politicians are loathe to oppose the ethanol scam, particularly if they are running for president."

Meyer makes clear that some of the companies who are shipping ethanol overseas are blending it into gasoline before they export it, thereby allowing them to claim the federal subsidy. Thus, large quantities of the fuel that, at least in theory, is supposed to be reducing America’s need for foreign oil, is instead going overseas.

For three decades, the ethanol industry has been claiming that their hydrophilic, corrosive, low-heat-content fuel is cutting America’s need for foreign oil. Indeed, the ethanol lobbyists cited the foreign oil bogeyman in their Tuesday letter to Congressional leaders, saying “The volumes of ethanol produced domestically have been uniquely successful in reducing our dependence on foreign, imported oil.”

That bogus claim has also provided a key justification for the 60-cents-per-gallon tariff the U.S. imposes on foreign ethanol, a tariff designed specifically to prevent cheaper Brazilian ethanol from coming to America. That tariff was justified by (what else?) that the domestic ethanol industry cuts oil imports and therefore must be protected. In 2006, Barack Obama, then a US Senator from Illinois, along with four other farm-state senators, sent a letter to President George W. Bush asking him to ignore calls to reduce tariffs on Brazilian sugarcane-based ethanol. Lowering the tariff, Obama and his fellow senators said, was unacceptable. “Our focus must be on building energy security through domestically produced renewable fuels.”

Thus, while the U.S. prevents cheaper foreign ethanol from coming here, taxpayers are giving fat subsidies (about $7 billion per year) to domestic corn ethanol producers who are then using some of that money to ship more and more of their product overseas. And in doing so, the U.S. ethanol sector is consuming nearly 40 percent of all the corn grown in the US.

The ethanol industry has mapped out a strategy to assure that the fat subsidies keep flowing. Matt Hartwig, a spokesman for the Renewable Fuels Association, recently said that the ethanol lobby hopes to tack an extension of the tax credits onto other legislation. Hatwig told Andrew Restuccia of the Iowa Independent that “One opportunity will be if/when they move Bush tax cut legislation. That would be a natural place to add tax extenders. We will look for any other vehicle that will get to the president’s desk.”

Given the ethanol industry’s long history of fleecing American taxpayers, don’t bet against that eventuality. And if you need one more fact to drive your ethanol-induced rage to the boiling point, consider this fact: Between 1999 and 2009, U.S. ethanol production increased sevenfold, to more than 700,000 barrels per day. And yet, over that same time span, US oil imports increased by more than 800,000 barrels per day.

Given that ethanol industry can’t point to any reduction in oil imports, what else do they have? Well, like every other subsidy-dependent industry, they are claiming that they create jobs. In their letter to Congress, the ethanol boosters are claiming the three-decade-old ethanol subsidy program should be extended because it has “supported the creation of hundreds of thousands” of “green jobs.”

Okay, but how much do those jobs cost? According to an analysis done last year by the Environmental Working Group, each of those “green” jobs created by the ethanol scammers cost taxpayers between $195,000 and $446,000 per year. Earlier this month, Advanced Economic Solutions, an Omaha consultancy run by the former chief economist for ConAgra Foods, analyzed how many jobs would be added by extending the ethanol tax credit. Their conclusion: 353 additional ethanol manufacturing jobs would be created, at “an annual cost of $19.68 million per job.”

The hard realities of the ethanol boondoggle are obvious. Among those realities: politicians are loathe to oppose the ethanol scam, particularly if they are running for president, because the first presidential primary is in Iowa. (Remember, Barack Obama won the Iowa primary.) Second, ethanol hasn’t, and won’t result in meaningful reductions in oil imports. And finally, the ethanol industry hasn’t created a significant number of jobs at anything close to a reasonable price.

Given all of that, there’s only one more question to be answered: when will Al Gore, who has finally spoken the truth about ethanol, retract the foolishness in his movie “An Inconvenient Truth”? Recall that at the end of his hit documentary, Gore admonishes viewers to “Reduce our dependence on foreign oil, help farmers grow alcohol fuels.”

Perhaps we should be thankful that Gore has finally seen the light on ethanol and dared to state the obvious: corn alcohol-based fuel is a bad idea. But Gore and other leaders of the Green/Left need to do more, and they need to do it now, so that the madness of the ethanol subsidies ends once and for all on December 31.

Robert Bryce is a senior fellow at the Manhattan Institute. His latest book is Power Hungry: The Myths of “Green” Energy and the Real Fuels of the Future.