Sunday, October 17, 2010

This oughta be good...

I would commend to your attention a series by Todd Neeley (The Ethanol Blog) now in progress.  I was going to wait until he finished, but not knowing the schedule, I think I'll jump in to comment on some aspects of his framing of the debate.

His analysis to date seems to supply some ammo for ethanol supporters in their fight to continue its enormous cost to the taxpayer.  He trots out the standard talking points from Big Ethanol.
Using the most liberal definition of public financial support, including tax breaks on equipment depreciation and foreign investments, oil’s total benefit from the public treasury can be as much as 10 times that of ethanol. [Same source for all quotes]
Please read the whole first installment, but that statement alone is subject to one observation.  Namely, since the oil industry delivers roughly ten times the fuel to consumers (not to mention enormous amounts of feedstocks for the chemical industry) on a per-gallon or per-energy-unit basis couldn't oil subsidies actually be similar or even lower?

Moreover, isn't this essentially the Big Farmer argument for DCP's and no payment limits - that we should receive proportional to our output?  Comparisons should at least offer some numbers other than gross totals.

The canard I struggle to find valid is assigning a common good paid for by the government (freedom of the seas) to specific beneficiaries: the tired idea our US Navy is acting as a private protection service for oil tankers.
But oil also benefits from a variety of indirect taxpayer supports, including U.S. military spending to protect the Persian Gulf. Mark Delucchi, a research scientist from the Institute of Transportation Studies at University of California Davis, said in a study that oil’s share of that protection ranges between $6.9 billion and $28.8 billion.
First of all, when your estimate varies that much, it indicates to me you don't know what to measure or how to measure it.  It's a SWAG (Scientific Wild-Ass Guess). 

Second, correct me if I'm wrong, but much of our Middle East presence is actually due to the security of Israel and the Suez Canal. And if we are concentrating massive resources on oil tankers, how the heck did those bozos in rubber rafts hijack so many of them?

Finally, don't farmers benefit from open seas when we ship to China?  Are there no subs and carriers in WesPac? What is agriculture's share of the naval presence on OUR trade routes?

This figure is specious and undermines the nature of a function of government (common defense) that is at the heart of our constitutional framework.

But of all the reactions to this first article, I was most struck by the failure to mention the word - at least I couldn't find it - "mandate".

This may be corrected in later posts, and that will be truly interesting. What is the economic value of the ethanol mandate?  I would suggest it is much, MUCH higher than the other subsidies combined.  

Ask yourself this: Without the mandate how much ethanol would be blended? Todd hints at this idea.
"One rule of thumb, where industry claims something is not a subsidy, is to see if they then don't care if the policy is terminated," he said. "If they fight removal, expiration, narrowing, or termination, it is quite good evidence that the policies they claim publicly aren't really subsidies, are in fact subsidizing them."
I will interested to see if any attempt is made to include some estimate of this cost in the subsidy total for ethanol.  It is, of course, possible all this will be discussed later.  I hope so. Todd does good work.  But writing in installments begs for responses in kind.


Anonymous said...

hmm if we could just mandate that 10% of grocery store purchases where red meats - regards-kevin

Anonymous said...

10% red meat wouldn't be much of the total. Besides then the fruit and vegetable producers would demand their mandated share of the total and various ag industries would once again be caught mandating to others (like ethanol) while declaring that it is "unamerican" if someone tells them to follow a mandate. Something about a speck in my brother's eye, I believe.

Anonymous said...

Did not Brazil mandate the use of ethanol in the 1970's when the oil crisis started? They made the decision to reduce their dependance on oil and stuck with it when oil became cheaper in the 80's. The U.S. let the ethanol industry almost dye, only to try to restart it a few years ago. Brazil's vehicles are now all ethanol friendly even if they are Ford's & Chevy's.

Anonymous said...

Our military presence in the middle east is much more about protecting our OIL supply than the Suez Canal. We fought Bush war #1 because Iraq took Kuwait and threatened to take Saudi Arabia (our big oil suppliers) not Isreal. Do you really think we would have spent our blood and treasure over there if the world oil supply had not been threatened? I don't think so.