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Corn Ethanol: Wasting Another $7 Billion of Your Money

Did you know the Federal Government requires 10% of every gallon of gasoline to be blended with Ethanol? Why? - supposedly to reduce dependence on foreign oil, lower fuel costs, and reduce Green house gas emissions. It doesn't pencil out. More likely it's really meaty pork for Iowa's Senator Grassley.

Did you also know that our government pays $.51 per gallon in subsidies to the ethanol producers making it a very profitable endeavor for corn growers? In 2007 we paid $7 billion in tax dollars to subsidize ethanol production.

Ethanol currently sells for about $1.70 per gallon, and the price is not likely to go down- why? because it costs about $1.70 per gallon to produce the stuff, and if the price falls any lower, they will simply stop making it. The scam is nearing its end.

So, why is Corn Based Ethanol one of the typical scams perpetrated on the American public by government? It's special interest pork- there's no reasonable return on investment with corn based ethanol.

Ethanol comes from sugar, and simply put, corn does not produce that much sugar. With corn based ethanol you must invest 1 unit of energy to create 1.13 units of energy return. It's simply a lousy return on investment.

Consider the domino effect ramifications. If you take corn and turn it into a fuel additive, what does it do to food costs? Well, for one thing, you are taking a food source of the food distribution network, causing scarcities and rising prices. You are depleting a food source for live stock, causing feed prices to increase. You are using valuable land that could be used to grow a food source cash crop and using it for a different purpose. Corn is a gigantic water and fertilizer consumer as well.

So, who benefits from corn ethanol? Certainly not the taxpayers. Here's a short list: #1 beneficiary- Archer Daniels Midland (NYSE: ADM)- I've read estimates suggesting 43% of ADM's annual profits come from products directly subsidized by taxpayers. Beltway watchdog organizations call this "corporate welfare". ADM delivered about $1 billion in profits last quarter- therefore about $430 million comes out of taxpayer pockets. ADM owns a number of ethanol processing plants around the country, and has benefited quite dramatically from the government mandates and subsidies.

How about Iowa corn growers- here's an interesting quote: "Everything about ethanol is good, good, good." --Senator Chuck Grassley, Iowa. Higher prices- more money. Pork for the senior senator. Politics as usual.

In short, the "concept" of ethanol works well as an alternative fuel. Here's the problem- it doesn't work with corn. It works with Sugar Cane. With Sugar Cane ethanol the return on investment is 1:15- another words, for every unit of energy invested, there's a 15 fold return on created energy.

Brazil has become energy independent from sugar cane ethanol production. They have replaced 60% of their fossil fuel needs with home grown ethanol. Nearly every vehicle (known as "flex fuel") in Brazil can run on pure ethanol, and every gas station has a pump with pure ethanol. They can produce it for about $1.00 per gallon, and it's $1.15 at the pump. Sugar cane is also the most favorable crop on earth for green house gases. 

So, why don't we import ethanol from Brazil? Because we charge the Brazilians a $.54 tariff per gallon. 

Think about it- we pay Americans $.51 per gallon in subsidies to make the stuff which just drives up other costs. We charge the Brazilians $.54 per gallon to sell it to us, and we require all our gasoline to be 10% ethanol.

Let the corn growers sell their product for food and save American tax payers the money. ADM just invested $500 million in a Brazilian joint venture for ethanol production. They are recognizing the scam in America is coming to an end. Do you think they'll be using their political muscle to get rid of the tariff next? I'll bet my bottom dollar. Notice who's pictured in this image- and yes, he's wearing an ADM helmet.

More on how Brazil perfected ethanol use next week.

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