Saturday, April 30, 2011

I wonder which side...

Big Ethanol is lobbying for. Oil subsidies could actually be in trouble.

In a letter to congressional leaders this week, Obama urged “immediate action” on the tax subsidies, arguing that the revenue generated from the move should be invested in clean energy programs to reduce America’s dependence on foreign oil.
In the letter, Obama said he was “heartened” by the “openness” House Speak John Boehner (R-Ohio) expressed on April 25 to the idea of eliminating tax subsidies for energy companies. “Our political system has for too long avoided and ignored this important step, and I hope we can come together in a bipartisan manner to get it done,” Obama wrote.
Later in the week, House Budget Committee Chairman Paul Ryan (R-Wis.) said he agreed that federal oil subsidies should be eliminated. “We’re talking about reforming the safety net, the welfare system; we also want to get rid of corporate welfare,” Ryan said at a town hall in Waterford, Wis. “And corporate welfare goes to agribusiness companies, energy companies, financial services companies, so we propose to repeal all that.”
I did some simple math a few months ago to show how a real btu-to-btu comparison reveals the considerably higher subsidy levels for ethanol compared to gasoline.
So if we use 51% as gasoline's share (allocated below), here is what the subsidy levels per gallon look like, using Todd's numbers.  I think this is fair because Todd counts home heating oil subsidies, for one example, in the mix, which don't have anything to do with the 140 B gallons of gasoline he divides by.  The last column using the energy difference between gasoline and ethanol (80%) for an energy equivalent number.

$B$/gal$/gal$/eqiv gal
Oil (low)*133.2 $0.96 $0.49 $0.49
Oil (high)*280.8 $2.01 $1.03 $1.03
Ethanol16.1 $1.24 $1.24 $1.55

[*These labels were stupidly reversed in the original post] 

It is fair to report the huge total number oil gets, but as I noted before, most farmers still believe the bigger you are the more subsidies you deserve.  And oil is a really big industry.
So for this observer, I think the idea oil is getting "more" subsidies is an artful arrangement of fact.  At the very least, oil gives the taxpayer more energy bang for his/her subsidy buck.
While I am skeptical of actual oil subsidy cuts, should it occur, enormous pressure would come to bear on the blender credit and tariff. Not to mention the revenge factor from the oil lobby.

Of course, we delay planting another three weeks or so and ethanol is toast, IMHO.

1 comment:

Keith said...

Make sure to catch the Smithfield CEO's comments in WSJ today...