Payment of a Subsidy to Corn Ethanol Producers in the United States - Essay Example

# The United s Government Should Subsidize Ethanol Producers Subsidies to the corn ethanol producers in the United States are helpful to the alternative fuels industry, the producers themselves, farmers, and local economies. The amount that any one ethanol producer receives in the form of a subsidy is actually quite small in comparison to the cost of running an ethanol plant. In fact, sometimes subsidies are “set-asides” by state governments just in case they’re needed, and payments are triggered by a complex combination of corn prices, fuel prices, and so on. For instance, money was set aside by the state of North Dakota in 2003 to subsidize ethanol producers. While some money was taken from the fund to subsidize older facilities, the program wasn’t fully triggered until 2007 for newer facilities. The money was released because high corn prices and low ethanol prices combined to pinch the facilities, and amounted to a mere $500,000 each in payments (Ebert). Newer ethanol plants are more efficient and cost-effective to run and use newer technologies. Older plants with older facilities, sometimes even borrowed facilities (as in the case of Gopher State Ethanol in St. Paul, Minnesota) are more difficult to run (Smith). Subsidies to corn ethanol producers are not bailouts. They are simply there to smooth changing commodity prices and to help with cash shortfalls for the plants. One argument against subsidizing ethanol producers is that those subsidies cause crop prices to rise. Government subsidies to corn ethanol producers totaled $7 billion in 2006 (zFacts.com). Subsidies to corn producers was $4.9 billion (EWG). While it’s true that subsidies to the ethanol industry have prompted more farmers to plant corn instead of other commodity crops, subsidies can’t be completely blamed for the rise in corn prices (Bandyk). Foreign demand plays a much larger role, as well as the usual factors like the weather and costs farmers pay to raise crops in general. When farmers form cooperatives and build their own co-owned ethanol plants, they benefit from subsidies in more than one way. Most corn producers don’t start ethanol plants, but simply grow corn. The effect of subsidizing the corn ethanol industry doesn’t directly affect crop prices across the board. Starting with President Bush, the push for developing renewable/sustainable energy sources for the United States has prompted continued interest in ethanol production. President-Elect Obama’s energy policies include support of renewable fuels, including bio-diesel and corn ethanol. He’s stated that he’ll continue to invest in research while still supporting proven technologies (Bevill). Ethanol doesn’t contribute a huge percentage to the United States’ energy needs right now, but it’s necessary to continue research and production in the United States, along the lines of the Brazilian ethanol economy. As with any research-oriented business, profits are to be made once technologies are in place, but developing those technologies requires support from federal and state governments in the form of subsidies. It’s necessary for the United States government to continue to invest in corn ethanol producers. These subsidies are an investment in the future as well as supporting ethanol producers right now. Renewable and alternative fuel production methods must be developed sooner rather than later, as our dependence on foreign oil grows by the day. Oil will run out at some point, and we need to have other plans in place before that happens. Ethanol is current, not cutting-edge, and so it’s a useful fuel source while awaiting the development of other technologies. The United States Government Should Not Subsidize Ethanol Producers Any government subsidy could be considered “corporate welfare,” a payment handed out to a business from the government without having to pay it back. Subsidies are supposed to help the businesses receiving the payments, but if subsidies go on long enough, those businesses start to depend on getting a regular government payment and so aren’t driven to make a profit, as another company might be that didn’t get subsidies. If businesses like corn ethanol producers are supposed to be making a profit, they should depend on their own business skills rather than government handouts. With all the budget shortfalls happening to state governments, states should spend their budget money on social programs instead of propping up businesses. In Minnesota, for instance, the state government decided to end subsidizing a failed ethanol plant when they were faced with a $935 million budget deficit (Smith). It was revealed that payments were going to the plant’s investors after it failed. Those investors were actually absentee owners of the plant, who continued to get paid subsidies and tax incentives after the plant closed its doors. Promises were made to pay subsidies when economic times in Minnesota were better, but those promises couldn’t be honored in the long run. State governments should think things through better before promising big businesses subsidy money. Current Federal guidelines on subsidies for ethanol plants encourage absentee owners to profit from ethanol plants instead of the local community (Voegele). Tax-credit incentives and subsidies for large-scale investors don’t do the local community any good. If smaller producers could claim the same benefits, there would be local, smaller-scale investing in ethanol plants, benefiting the local economy. Instead, corn ethanol producers count on raising capital from absentee investors, who are repaid out of the plants’ incomes, including subsidies. Corn ethanol isn’t going to rescue the United States from its dependence on foreign oil. Scientists have studied the total amount of energy that goes into making a gallon of ethanol (from tractor fuel through the energy used at the ethanol plant), and determined that ethanol is “a net-energy loser” (Bryce). It seems subsidies are just piling more money on top of a money-losing proposition. Making ethanol from grasses instead of corn might bring the energy input/output more into balance, but as of now there are no ethanol plants in the United States that process grass into ethanol. It seems that subsidizing ethanol plants is actually necessary because more money goes into producing a gallon of ethanol than comes out of a gallon of ethanol. Another problem with thinking ethanol will rescue the United States from its dependence on foreign oil is that Americans used more than 134 billion gallons of gasoline in 2005, but our ethanol plants produced only 8 billion gallons of ethanol (Bryce). It’s clear that U.S. plants don’t have the capacity to make a dent in our consumption of oil, and since ethanol is expensive to make and requires government subsidies to stay in business, it’s just not economical to continue to subsidize ethanol plants. Actual subsidy payments are only part of the total government handouts to ethanol producers. Tax incentives, a special tariff on imported ethanol, subsidized loans, etc. also benefit ethanol producers such as multi-million dollar companies like ADM. Local farmers and investors can’t find the money to build and run ethanol plants, but big corporations can. Subsidies may not be made directly to the big corporations, but they profit from having those monies available in order to build and run the plants. It would be better for the federal and state governments to invest this subsidy money in research toward more sustainable and profitable fuel sources. We need to find fuel sources other than oil, but ethanol isn’t the way to go. Works Cited Bandyk, Matthew. “Subsidies and High Crop Prices.” US News and World Report, 24 Jan. 2008. 30 Nov. 2008 . Bevill, Kris. “Obama Energy Director Emphasizes Support for Biofuels.” Ethanol Producer Magazine, Nov. 2008. 8 Oct. 2008. 30 Nov. 2008 . Bryce, Robert. “Corn Dog: The Ethanol Subsidy Is Worse Than You Can Imagine.” Slate. 19 July 2005. 30 Nov. 2008 . Ebert, Jessica. “North Dakota Offers Ethanol Subsidies.” Ethanol Producer Magazine, Dec. 2007. 1 Dec. 2008 . EWG (Environmental Working Group). “Corn Subsidies in United States.” 2008. 1 Dec. 2008. . Smith, Sarah. “Bankrupt Minnesota Ethanol Plant May Lose State Payments.” Ethanol Producer Magazine, May 2008. 30 Nov. 2008 . Voegele, Erin. “Study Recommends Changes to Renewable Energy Incentive Programs.” Ethanol Producer Magazine, Oct. 2008. 15 Sep. 2008. 30 Nov. 2008 . ZFacts.com. 9 Sep. 2007. 1 Dec. 2008. . Read More