Wednesday, June 11, 2008

OK, so the government should regulate and monitor energy, right?

That's the general consensus over at Delwareliberal, where it is fascinating to watch our more progressive friends pile up an ever bigger and longer list of items they want the State to monitor and regulate.

But let's do a reality check.

Did you know that roughly a dime's worth of the cost of a gallon of over-priced gasoline can be traced to the fact that-wait for it--our government actually imposes an import tariff on foreign ethanol?

That's right: $.54/gallon on foreign ethanol entering our country.

According to CNN:

The import tariff of 54-cents a gallon on ethanol - a required component in gasoline - keeps the price of imported ethanol high. Much imported ethanol is made from sugarcane which is cheaper-to-produce than domestic corn-based ethanol.

The fact that the government has a tariff on any energy product in these times of high prices is illogical to some.

"We don't have a tariff on oil or natural gas or anything like that," said Bill Koetzle, an analyst at the Institute for Energy Research, a free market-leaning think tank. "It's old-fashioned protectionism."

If the tariff were lifted imports would likely grow, and that could cut ethanol prices by maybe $1 a gallon, said John Kilduff, an energy analyst at MF Global in New York.

But ethanol doesn't make up a huge portion of the U.S. gasoline supply. Out of about 150 billion gallons of gas used annually in the U.S., ethanol is projected to make up about 9 billion gallons of that this year. So Kilduff said gasoline prices might be reduced by maybe 10 cents a gallon.

Ethanol use is mandated to grow to 36 billion gallons by 2022, so the price drop in gasoline if the tariff is suspended could increase over time.

Defenders of the tariff say lifting it may result in some domestic ethanol producers going out of business, leaving the country open to greater reliance on foreign countries like Brazil.

"If we want energy security, we need to make sure ethanol facilities are built in the U.S.," said Arnie Klann, president of BlueFire Ethanol, an Irving, Calif.-based company focused on making ethanol from non-food crops.


Don't expect this to change if Senator Barack Obama becomes president, because when it comes to ethanol he's a devout protectionist:

Expand Locally-Owned Biofuel Refineries: Less than 10 percent of new ethanol production today is from farmer-owned refineries. New ethanol refineries help jumpstart rural economies. Obama will create a number of incentives for local communities to invest in their biofuels refineries.


Where does the funding for those incentives come from? You guessed it, the ethanol tariffs.

So one of the benefits of having the State regulate and monitor energy is that it intentionally makes gasoline more expensive?

To quote North Carolina's Michael Munger (from whose Kids Prefer Cheese I got the lead on this story):

Good sweet fancy Moses.

Thus says the man who, if candidates were actually elected on their merits, would be the next governor of the Tarheel State.

Before I forget, a postscript from one of Mike's well-read commenters:

It gets worse.

The ethanol produced in the U.S. is almost completely corn based, hence produced exclusively in the Midwest. Unfortunately, you can't send ethonol through a pipeline (it's too corrosive).

The only option is to truck it or train it. Trains hate the stuff, too dangerous if derailment (alcohol fires are nearly invisible and difficult to put out). There aren't enough trucks in the U.S. to move it where it's needed in large quantities- east and west coasts. Even if there were enough trucks, it would take more energy to move it than would be saved by displaced oil consumption.

So not only has a protected market been created for an inferior product (corn derived ethanol v. sugar derived), but ethanol from Brazil could be efficiently transported to the east and west coast by barge.

So we have an inferior product, in a protected market, that can't be efficiently moved to where the demand (albeit artificially created) is present.

Thank "W" and Pelosi for coming up with this solution to oil dependence in the "Energy Independence and Security Act of 2007."


So explain it to me again--with Dubya and Pelosi combining to bring us this ingenious policy, exactly why do I want to entrust the management of energy solely to the Federal government?

(Followed by the sound of one hand clapping.)

2 comments:

Brian said...

Steve I want the states and citizens to be in charge of enegry decisions. My proposals to open solar and wind markets up to normal citizens or to drop energy prices have met with extreme prejudice from some quarters. Not to mention among some at the State Legislature.

SBVOR said...

If you care to, click the link and spread the word.