A couple weeks ago, after I published yet another story on corn ethanol “Yet More Outrages of the Corn Ethanol Scam,” Chris Thorne, the director of public affairs for Growth Energy sent us an email objecting to the story.

We are publishing Thorne’s email in its entirety. We’re doing so because we understand that the corn ethanol business is not going to go away anytime soon. In addition, Thorne made it clear that he wants a polite and respectful argument. Fair enough. Please read his email, and below that, my responses to it.

Mr. Bryce,

The story you wrote echoing the Baker report unfortunately echoed many of the distortions about ethanol. First, your readers should know the paper was financed by Chevron. Second, although I understand your website has an institutional slant against ethanol, repeating the misrepresentations of the Baker report hides the truth: The conclusions in the Baker Institute report – to continue our nation’s addiction on dangerously expensive, high-carbon foreign oil – are in direct contradiction with the conclusions of numerous independent, government and academic reports, including the Oak Ridge National Laboratory, the Department of Energy, the University of Nebraska, the Windmill Group, and others.

From job creation to eliminating 13 million tons of greenhouse gas emissions and the need to import more than 320 million barrels of oil annually, ethanol’s positive impact on the United States is undeniable.

According to a recent Sandia National Laboratory and General Motors report, The 90 Billion Gallon Biofuel Deployment Study, biofuels could replace nearly a third of current U.S. gasoline use by the year 2030.

In 2008 alone, ethanol production contributed $65.6 billion to the nation’s Gross Domestic Product, and generated more than $11.9 billion in federal tax revenues. The estimated cost of the two major Federal incentives in 2008 totaled $4.7 billion. Consequently, the ethanol industry generated a surplus of $7.1 billion for the Federal treasury.

What the opponents of ethanol don’t want discussed are the hidden costs of continuing our addiction to foreign oil – whether that’s the estimated $50 billion a year spent on protecting oil shipping routes, to the $100 billion a year that we move out of the U.S. economy to the economies of nations that do not share American values or interests.

It is also worth noting that a recent GAO study found that since 1968 the oil industry has received more than $150 billion in tax breaks, subsidies and incentives. Domestic support for ethanol has been less than a tenth of that total, despite the fact that it is an emerging technology that will create U.S. jobs, lower greenhouse gas emissions and make America less dependent on foreign oil.

An Iowa State University research team that invested farm subsidies, farm income and ethanol mandates, incentives and tariffs also concluded that U.S. ethanol policies saved the U.S. government as much as $2.65 billion in 2007 alone because farmer support payments were reduced due to the increased market for ethanol. I send you these points in an effort to lay out our argument politely and respectfully.

Chris Thorne Director of Public Affairs for Growth Energy

Robert Bryce responds.

Thorne first attacks the Baker Institute report because the project received funding from Chevron Technology Ventures. The implication of Thorne’s point is that all oil companies are opposed to corn ethanol. He doesn’t mention that Big Oil is now one of the biggest investors in corn ethanol. Valero Energy Corp., one of America’s biggest refiners, bought 10 ethanol plants last year, with total ethanol capacity of 1 billion gallons per year. That means that the oil industry has become one of the biggest ethanol producers. And as the Wall Street Journal reports today, Valero is making money from ethanol. Furthermore, for Thorne, who works as a spokesman for an advocacy organization, to claim that another outfit’s report is biased, well, enough said.

Thorne talks about America’s “addiction” to “dangerously expensive, high-carbon foreign oil.” This line shows Thorne’s willingness to use political slogans rather than facts. As I’ve written previously, anytime someone claims that we are “addicted to oil” or “addicted to coal” try substituting the word “prosperity” for the words “oil” or “coal.” The use of the word “addiction” is a cheap way of trying to associate oil, perhaps the single most valuable and flexible compound ever discovered, with the illegal drug trade. Further, Thorne and his group don’t really care about addiction at all. They merely want to increase the use of their fuel, ethanol. Thus, if we Americans get “addicted” to ethanol, would Thorne be satisfied? The answer, given his phrasing, appears to be yes.

As to his claim that oil is “dangerously expensive,” again, the facts expose this outrageous falsehood.

As Robert Rapier pointed out a few days ago ethanol now costs substantially more than gasoline. When calculated on a per-million-Btu basis, ethanol costs $24.74, while gasoline costs $18.16. Thus, consumers who buy ethanol are paying 36.2% more to buy a fuel that is grossly inferior to gasoline. Ethanol is corrosive, hydrophilic, and contains just two-thirds of the heat content of gasoline. And those properties are causing real problems. In January 2009, Toyota announced that it was recalling 214,570 Lexus vehicles. The reason for the recall: The company found that “ethanol fuels with a low moisture content will corrode the internal surface of the fuel rails.” Numerous reports have documented the ill effects that ethanol-blended gasoline is having on engines in lawn mowers, weed whackers, boats, and other equipment. Lawyers in Florida have sued a group of oil companies for damage allegedly done to boat fuel tanks and engines from ethanol-blended fuel.

Need more proof that ethanol is more expensive than gasoline? Look at the State of Nebraska’s website for a history of ethanol prices and gasoline prices. Pick nearly any year from 1982 to the present. You’ll see that in essentially every year, the average cost of ethanol exceeded the average cost of gasoline. And even if you find a year when ethanol was less expensive, that price advantage disappears when you factor in the fact that ethanol contains just two-thirds of the heat energy of gasoline. Ethanol is inferior to gasoline on nearly every count, and that includes price.

Thorne claims that ethanol will create jobs, cut greenhouse gases, and the need to “import 320 million barrels of oil annually.” On all three issues, I have just one response: hogwash.

Regarding jobs, Iowa State University economist Dave Swenson debunked that claim back in December 2007 with a report which showed that by 2016 the US ethanol industry might be responsible for about 9,000 jobs. I talked to Swenson this morning by phone to follow up on his 2007 analysis. He told me this:

We’ve increased jobs but not by very much and the cost of those job increases are very high because they have been funded by subsidies. There’s precious little evidence that the economy is better off as a consequence of our increased emphasis on biofuels. And there’s more evidence to suggest that we are worse off because the biofuels subsides cost so much and yield so little in terms of energy security and environmental gains.

Swenson works at Iowa State, an agriculture-focused school in a state that produces more ethanol than any other. He doesn’t think the ethanol industry has produced many jobs at all. Does Thorne assume that Swenson, too, is in the employ of Chevron? Or is some other evil force at work leading Swenson to make these conclusions? The simple truth is that Thorne – along with every other promoter of “green” energy – is trying to latch on to weak claims about job creation in order to justify more subsidies for his particularly rent-seeking industry.

As for greenhouse gases, again, hogwash. Perhaps Thorne is unaware of the many studies done on this issue by Tim Searchinger and others. Or perhaps he’s just choosing to ignore it.

Regarding oil imports, Thorne chooses to repeat the ethanol industry’s most pernicious fiction: that it has made any difference at all when it comes to America’s oil trade. In 2008, I debunked this claim in Slate by showing that the rapid increase in ethanol production that occurred during the ‘00s had no effect on overall US oil imports. In fact, during that time period, oil imports increased. But the best, most thorough, dismantling of this argument was done by Robert Rapier last October, which concluded that ethanol “is taking [a] very little bite out of our petroleum consumption.” See here for another installment from Rapier that puts paid to the fiction being repeated ad nauseum by Thorne.

Note that Thorne repeatedly talks about the evils of foreign oil as a justification for the ethanol scam. He conveniently forgets to note two points:

1. The U.S. was a net crude oil importer way back in 1913. In fact, between 1913 and 2009, the U.S. was a net crude exporter in just nine of those years.

2. According to the Energy Information Administration, just 18% of our oil imports come from the Persian Gulf.

Given Thorne’s repeated citation of the dangers of foreign oil, here’s a tip: whenever you hear anyone talk about the evils of imported energy, grab your wallet. They want your money to solve what they insist must be a problem.

As to the dollars and cents of subsidies, let’s look at a 2008 report from the Energy Information Administration. According to the EIA, the US gets about 98 times as much energy from natural gas and oil as it does from ethanol and biofuels. And yet, when measured on a per-unit-of-energy basis, Congress favors the ethanol and biofuels industry with subsidies that are 190 times as large as those given to the oil and gas sector. Those numbers are contained in an April 2008 EIA report: “Federal Financial Interventions and Subsidies in Energy Markets 2007.”¹

The 274-page report is dense with tables and jargon. But Table ES6 has the gold. It lists a number of domestic energy sources that get subsidies including “Natural Gas and Petroleum Liquids” and “Ethanol/Biofuels.” In 2007, according to the table, the US consumed nearly 55.8 quadrillion Btus, or about 9.6 billion barrels of oil equivalent, in the form of natural gas and oil. That’s about 98 times as much energy as the US consumed in the form of ethanol and biofuels, which totaled about 98 million barrels of oil equivalent.

Energy Consumption and Subsidies

Source: EIA

While those numbers are noteworthy, the real outrage in Table ES6 can be found in the column titled “subsidy per million BTU.” Ethanol and biofuels are getting $5.72 per million BTU of fuel produced. That’s 190 times as much as natural gas and petroleum liquids, which get just $0.03 per million BTU of fuel produced. Furthermore, Table ES6 shows that the ethanol and biofuels industry is more heavily subsidized – in raw dollar terms – than the oil and gas industry. In 2007, the ethanol and biofuels industries got $3.25 billion in subsidies while the oil and gas industry collected $1.92 billion in subsidies.

Despite these enormous subsidies, the ethanol producers are queuing up for even more mandates and subsidies. Thorne and his fellow travelers at Growth Energy, a group that includes former US Army General Wesley Clark, want the federal government to break the “blend wall,” which prohibits gasoline retailers from selling fuel containing more than 10% ethanol. Why do the ethanol scammers need the blend specification to rise to 15%? The answer: fat federal subsidies led to too much capital investment in the sector, which led to huge amounts of overcapacity. According to Ethanol Producer Magazine, the US now has 22 ethanol plants with a capacity of 1.2 billion gallons per year, that are sitting idle. And another 11 plants with 1.1 billion gallons of production capacity are under construction.

Think about what those numbers mean: The US now has, according to the Renewable Fuels Association, about 13 billion gallons of ethanol production capacity. Thus, about 9.2% of the industry’s capacity is idle. And more capacity is coming online soon. Rather than take the losses on their investments, the ethanol industry – by cowering under the banner of patriotism, and by hyping the dangers of foreign oil – is arguing that it should be rescued by taxpayers.

In other words, the ethanol industry wants US motorists to bear the cost of its mistakes. It wants to foist more of its inferior product into the motor fuel pool at a time when gasoline demand is flat or declining. And it wants that regulatory relief – actually, let’s call it what it is: a regulatory bailout – at the very same time that US oil refineries are closing due to lackluster demand. Valero recently closed its oil refinery in Delaware because of lousy demand. Furthermore, the ethanol boosters want to force car owners to use more ethanol even though the Alliance of Automobile Manufacturers, which represents ten big car makers, opposes the breaking of the blend wall. The automakers say that the idea “is premature, and since EPA has never allowed conventional vehicles to use higher ethanol blends, the research on their potential impacts on vehicles not designed, tested or warranted for their use is incomplete.”

Thorne begins his letter to me by talking about the many “distortions about ethanol.” The reality – not the hype, or the facile political slogans – show that the corn ethanol scam continues to be one of the longest-running robberies of taxpayers in US history. That Thorne continues to repeat the ethanol industry’s most outrageous fictions about job creation, oil imports, and other issues shows that when it comes to dealing with facts, not spin, the ethanol industry is married to mendacity.

1. E.I.A., “Federal Financial Interventions and Subsidies in Energy Markets 2007,” April 2008, 23. Available: http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/pdf/subsidy08.pdf