Common Tragedies

Thoughts on Environmental Economics

The RFA is also an idiot

Posted by Evan Herrnstadt on December 17, 2008

From Greenwire (gated, sorry): Big ethanol The Renewable Fuels Association (RFA) has been lobbying the Obama transition administration proposed three major initiatives that are based entirely on good economics and policy and have nothing to do with the fact that their industry is floundering:

  1. Give the ethanol industry $50 billion in federal loan guarantees for new infrastructure and capacity.
  2. Automakers accepting federal bailout money must build all of their vehicles with flex-fuel capability starting with the 2010 model year.
  3. Establish a tax credit for ethanol producers for each green job created.

The problem common across all of these is that they seem to presume that ethanol is a good idea.

us-ethanol-production

The first one is not a categorically terrible plan because if we ever get second-generation biofuels up and running in an efficient, low-carbon, cost-competitive manifestation, we will need infrastructure to distribute it.  However, I don’t think that the ethanol industry needs any federal backing to expand capacity.

They seemed to be doing just fine on their own (if a 51-cent/gal blending subsidy equates to independence) until the last year or so, as is evident from this chart from the RFA itself.  To be fair, this boom was during the good times and things are tougher these days, but this kind of undermines the argument for loan guarantees.  Should we be shoring up the risk for an environmentally questionable endeavor while it seems exceptionally likely to fail?

The second request is preposterous.

The third is even worse.   First, let’s pretend that we can define a green job.  Think about possible loopholes in this tax law for about three seconds and you’ll see my problem.  Second, does anyone outside the RFA really think that a job producing first-gen ethanol should be considered green?  If so, my night job tending my tire fire should also qualify for a tax break.  If I never read the phrase “green jobs” again in my entire life, I’ll still consider myself overexposed.

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3 Responses to “The RFA is also an idiot”

  1. Rich Sweeney said

    I can see the headlines now: “GM fires 50,000 regular workers, hires 50,000 “green” workers, collects massive tax break.”

  2. Josh Blonz said

    Another point worth mentioning is that there was a large spike in ethanol demand in 2006 due to our switching away from MTBE. All of the health/groundwater concerns created a massive shift towards ethanol and drove the spike. We even imported a lot (roughly 400 million gallons) of ethanol from brazil in 2006. Basically, this graph tells you nothing except…well…we use a lot of ethanol.

  3. Evan Herrnstadt said

    Wait, maybe I’m not getting something, but this graph is specifically U.S. production of fuel ethanol. This is some indication that through 2007 they weren’t having much trouble building production capacity. And this should still be the case unless some old loan guarantee or subsidy program expired or something.

    Am I missing something crucial?

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