EDMOND — In June 2008 I wrote a column about the economic impact of ethanol blended with gasoline. I described what a terrible mistake tax subsidy for ethanol was. Nothing much has changed. Ethanol has been the great hope in certain circles in terms of decreasing our dependence on oil. In my opinion, it was never a good idea at all.

The problem at this point is there are billions of dollars invested in this idea and you can be sure those investors are not anxious to see those investments proven wrong. To paraphrase a favorite funny saying, ethanol fans might be saying “never let the facts get in the way of a good story.”  Here are some of the facts:

Hardly anyone disagrees that it would be good to reduce our dependence on oil and create alternative fuels. Ethanol is not the answer and it seems Sen. Tom Coburn, R-Oklahoma, agrees. He and Sen. Ben Cardin, D-Maryland, recently introduced bipartisan legislation to repeal a tax credit on corn ethanol that could save taxpayers roughly $6 billion per year. Thank goodness someone is finally showing some common sense and I applaud their efforts.

Both senators refer to the “blenders” tax credit as costly and ineffective.  Officially known as the Volumetric Ethanol Excise Tax Credit, or VEETC, it pays blenders 45 cents for each blended gallon. Coburn labeled the ethanol tax credit as “bad economic policy, bad energy policy and bad environmental policy.” He couldn’t be more correct.

“The $6 billion we waste every year on corporate welfare should instead stay in taxpayers’ pockets where it can be used to spur innovation, stimulate growth and create jobs,” Coburn said.

As everyone knows, food and commodity prices have exploded in the past year. While there is some debate over how much of the food price increase can be blamed on biofuels, there is no question that conversion of food to ethanol is part of it. These price increases are substantial threats to the welfare of consumers, especially in poor developing countries.

While there are many long-simmering underlying causes, much of the recent rioting in the Middle East was initially triggered by rising food costs.  If you spend 50 percent or more of your disposable income on food, this is beyond inflation. It’s a disaster. Even in the U.S, the bottom fifth of income earners spend almost 60 percent of their income on food and energy.

It would be one thing to argue that converting corn into ethanol created some type of great benefit for which the sacrifice was worth it. But that’s not true either. Not only is it a waste to convert needed food into fuel, the fuel creates more pollution than the gas it replaces and takes more to produce the same amount of energy. The current biofuels craze is neither clean nor green.

The problem with using ethanol as fuel in a large-scale way comes down to two primary, related issues: There’s not nearly as much energy in ethanol as there is in gasoline; and creating significant amounts of energy from food crops would deplete the amount of land available for growing actual food for people to eat.

According to Cornell University professor of agriculture David Pimentel, producing ethanol actually creates a net energy loss. According to his calculations, producing corn and processing it into 1 gallon of ethanol requires 131,000 BTUs of energy; but 1 gallon of ethanol contains only 77,000 BTUs. And since farmers are using fossil-fuel-powered equipment to plant, maintain and harvest the corn and are using fossil-fuel-powered machinery to process that corn into ethanol and then, in almost all cases, to ship the product to collection points via fuel-powered transport, the ethanol industry is actually burning large amounts of gasoline to produce this alternative fuel. Ethanol ends up containing less energy than the gasoline consumed to produce it.

According to that same study, for every gallon of ethanol produced, 1.4 gallons of energy is consumed in the process, compared to 0.15 gallons used in the manufacture of gasoline. It takes 1.5 gallons of ethanol (E-85) to drive as many miles as 1 gallon of gasoline. Every gallon of ethanol removes 45 cents from the Federal Highway Trust Fund because of the VEETC when we desperately need that money for road and bridges.

But don’t take my word for it. Try it in your own car. Fill up your car with ethanol gas and take careful note of your gas mileage. Then fill up with gas containing no ethanol and see how much farther you get on a tank of gas. You’ll be amazed. With ethanol you get worse gas mileage and your car runs worse too. I never put that junk in my car.

So let’s see — by using gas containing ethanol we burn more fuel to go the same distance, add more pollution into the atmosphere and create higher food prices that hurt the people who can least afford it, while causing them to spend more per mile with what little they have left. Tell me again why this is a good thing? I’m confused.

Biofuels have become a distraction, not a solution. It is now time for governments to respond, not with more trade distortions and subsidies, but by ending the failed policies that have created an artificial industry.  Thanks Sens. Coburn and Cardin. We all hope you can get this one passed and stop the madness. Thanks for reading.



NICK MASSEY is a financial adviser and owner of Householder Group Financial Advisors in Edmond. Massey can be reached at www.nickmassey.com. Securities offered through Securities Service Network Inc., member FINRA/SIPC.