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Looks Like I Struck a Nerve

I started to notice a trend in the comments following my latest Forbes essay about the redundant nature of ethanol subsidies now that mandates via the Renewable Fuel Standard (RFS) are in place. Several comments in a row seemed to be regurgitated talking points that were just red herrings with respect to the point I was making. I knew that meant that somewhere a call had gone out to ethanol supporters to speak out against me. I now know the source, and at the end of this essay, I offer a debate challenge to the organization that issued the talking points.

To review, my point is simple. Someone said that it would be great if I could reduce it to a talking point, so here it is: Mandating ethanol while also subsidizing it is like paying people to obey speed limits.

If that isn’t self-explanatory, here is the logic behind the analogy. We have laws that govern the speed limits on our roadways. You can be penalized if you violate these limits, thus there is an enforcement mechanism in place that compels people to obey the law.

This is the same as the ethanol mandate. We have a law in place that directs refiners to blend a certain percentage of ethanol into their fuel. There are penalties for failing to meet those mandates, thus there is an enforcement mechanism in place.

Now would anyone think it was a good idea if we started using tax dollars to pull people over and pay them for complying with speed limits? I think most people would agree that this would qualify as a stupid idea and a waste of taxpayer money – especially when you consider that some government agency would have to run and audit the program for compliance. It would certainly be redundant given that there are already penalties in place for failure to obey.

With the ethanol subsidies, we are paying people to obey the speed limit. And the ethanol lobby was a little concerned that I had called attention to that fact. Turns out that Growth Energy, the ethanol lobbying organization whose co-chairman is General Wesley Clark, issued the following talking points to their members and asked them to rise up in a groundswell of opposition.

An excerpt from the e-mail they sent out (courtesy of this link):

Here are some points to consider, and remember to use these in your own words:

* What Rapier is suggesting boils down to a tax increase on an innovative, domestic energy industry. Does Forbes really endorse raising taxes in this tough economic climate? Does Rapier really think raising taxes on an emerging industry is smart?

* With domestic, green energy the likely source of hundreds of thousands of new jobs in the United States, why would Forbes and Rapier force a job-killing tax increase on ethanol?

* If Rapier is so eager to tax American energy companies, why not end the massive tax subsidies and tax breaks that Big Oil and gas companies get? By some estimates, the oil and gas industry will get around $29 billion in tax breaks from 2008 to 2013. That’s an enormous handout to an industry that sends a billion dollars a day overseas – often to countries that are hostile to the United States.

* If the choice were to give a tax credit that helps an American farmer and an American engineer in an American ethanol plant, or giving a tax break to an oil man who is doing business in the Middle East, I’d rather the tax credit stay here on American shores..

* The VEETC has reduced farm payments and increased tax revenue that completely offsets whatever the cost of that tax credit is – and in fact generates additional revenue for the federal treasury. In 2007, the $3.3 billion VEETC costs saw farm payments reduced by $8 billion, and generated $8 billion in tax revenue, according to an Iowa State University study.

That is absolutely priceless. None of those talking points actually address my argument. But apparently they were counting on some of their members not being able to think for themselves and just go out and repeat the talking points. So, a few showed up at Forbes and did just that. I answered each one of them – pointing out the obvious flaws in their thinking –  and of course none of them responded because they didn’t have anyone telling them what to say. 

But hey, I am a big boy. I can take the heat. Let’s take their talking points and address them, just to show how silly they are.

Point 1: What Rapier is suggesting boils down to a tax increase on an innovative, domestic energy industry.

Response: Right. Taking a tax credit away that is collected by the oil companies – which last year amounted to about $5 billion – and giving it back to taxpayers is a tax increase. That’s straight out of Lobbying 101, where up is down and green is red if that’s what your client wants.

I would love for someone to walk me through just how this amounts to a tax increase on this “innovative, domestic energy industry.” Anyone? Remember, the oil companies are still mandated to blend the same amount of fuel, whether they collect a subsidy or not. Point 1 – as silly as it was – refuted.

Point 2: With domestic, green energy the likely source of hundreds of thousands of new jobs in the United States, why would Forbes and Rapier force a job-killing tax increase on ethanol?

Response: Repeat the “tax increase” canard, and hope it begins to take hold with their members (and hopefully the public). “This guy wants to raise our taxes!” Remember, at issue here is $5 billion (and rising) of taxpayer money that is being paid out in unneeded subsidies. Eliminating that is a tax increase in their world? There are no words.

Point 3: If Rapier is so eager to tax American energy companies, why not end the massive tax subsidies and tax breaks that Big Oil and gas companies get?

Response: This one is a beauty. First, the point is completely irrelevant, given that the oil companies would still be under mandate to buy the product. Whether they are being subsidized by a trillion dollars a year has no bearing at all on this argument, as it doesn’t impact how much ethanol they are mandated to buy. It is just one more red herring.

But the really funny part about this point is the oil companies are the ones receiving the subsidy in this case. The ethanol industry has told us that many times. If Growth Energy is suggesting we get rid of oil company subsidies, aren’t they just making my point for me?

It wasn’t so long ago that Brian Jennings, the executive vice president of the American Coalition for Ethanol – a fellow ethanol lobbying organization (there seem to be quite a few) – said matter-of-factly that the blender’s credit does not benefit ethanol producers, that “it is actually an incentive the petroleum industry receives for blending ethanol into gasoline.” Vinod Khosla has made the same argument. Here he is on this issue:

Ethanol has a subsidy, but the farmer doesn’t get any of that. What I heard, is that well past midnight when this was being debated in the conference committee, the oil companies inserted 2 words into the language, calling this subsidy a blender’s credit. So the person who is blending it with gasoline gets it. All $2 billion of it last year [2005] was collected by the oil companies. Like they needed more money.

So which is it, ethanol lobby? How exactly is a credit received by the oil industry for complying with a law to blend more ethanol supposed to benefit the ethanol industry? Are you afraid the oil company wouldn’t blend the ethanol if the subsidy wasn’t there? I know I am repeating myself, but you don’t seem to get it: They are compelled to do so by law regardless. Finally, why do you wish to protect the subsidy when members of the ethanol lobby have pointed out that it is really an oil company subsidy?

Point 4: If the choice were to give a tax credit that helps an American farmer and an American engineer in an American ethanol plant, or giving a tax break to an oil man who is doing business in the Middle East, I’d rather the tax credit stay here on American shores.

Response: But doesn’t the “oil man” get this tax credit? You guys are talking out of both sides of your mouth, and it isn’t a pretty picture. I think you have set a record for red herrings in a response.

Point 5: The VEETC has reduced farm payments and increased tax revenue that completely offsets whatever the cost of that tax credit is…

Response: Irrelevant even if true, because once more I remind you that the blender still has to buy the ethanol. So if it really had the offsets you claim, that won’t change by eliminating the subsidy.

If that’s the best you have, then I can safely conclude that the emperor has no clothes. You didn’t address my arguments at all, because you know you can’t. Of course people might be curious as to why you have responded in such a way, but I know why you did. The last thing you want is for people to confront the costs of ethanol at the pump, where they might start to think that our ethanol policy isn’t such a good idea after all. That is what you truly fear.

In conclusion, I would like to issue a debate challenge to Growth Energy. Instead of hiding behind e-mail messages to their members, I challenge them to take up a three-round written debate on the matter. I propose the following:

Resolved: Implementation of the RFS negates the need for the tax credit.

If you are up to it, pick the best person from your organization. Better bring your “A-Game”, though. Or, if that e-mail represents your “A-Game”, you might as well forfeit now.

February 18, 2010 Posted by | energy policy, ethanol mandate, ethanol subsidies, farm policy, Growth Energy, politics | Comments Off on Looks Like I Struck a Nerve