Corn ethanol is about corn-state politics
Many who want to slow global warming support corn-ethanol subsidies. It seems to make sense because corn takes CO2 out of the atmosphere so using corn-ethanol is carbon neutral. The problem is that making corn ethanol makes lots of GHGs.
ADM, a big multinational corporation, was the first big lobbyist for corn ethanol, but once it got going the farm states got behind them. It's not just the ethanol makers who make money, all corn farmers make money, even the ones who sell their corn for chicken feed, or corn syrup. The demand for ethanol corn drives up the price of every bushel of corn, and corn is the biggest crop in the US.
In 2006, over $8 billion in subsidies (some direct and some from artificially high ethanol prices) went into the ethanol market. This doesn't even count the extra money made on the 80% of corn that is not used for ethanol. Any politician that tries to cutting off that much money will lose a lot of votes. Here's the ADM story.
How ADM makes a killing on ethanol
Excerpts from the NY Times, June 25, 2006
Farmers are seeing little of the huge profits ethanol refiners like Archer Daniels Midland (ADM) are banking. ... The ethanol explosion began in the 1970's and 1980's, when ADM's chief executive, Dwayne O. Andreas, was a generous campaign contributor and well-known figure in the halls of Congress who helped push the idea of transforming corn into fuel.
Given the glut in corn, the early strategy of Mr. Andreas was to drum up interest in ethanol on the state level among corn farmers and persuade Washington to provide generous tax incentives. But in 1990, when Congress mandated the use of a supplement in gasoline to help limit emissions, ADM lost out to the oil industry, which won the right to use the cheaper methyl tertiary butyl ether, or MTBE, derived from natural gas, to fill the 10 percent fuel requirement.
Adding to its woes, ADM was marred by scandal in 1996 when several company executives, including one of the sons of Mr. Andreas, were convicted of conspiracy to fix lysine markets. The company was fined $100 million. Since then, ADM's direct political clout in Washington may have waned a bit but it still pursues its policy preferences through a series of trade organizations, notably the Renewable Fuels Association. ...
But ADM has not lost interest in promoting ethanol among farm organizations, politicians and the news media. It is by far the biggest beneficiary of more than $2 billion in government subsidies the ethanol industry receives each year, via a 51-cent-a-gallon tax credit given to refiners and blenders that mix ethanol into their gasoline. ADM will earn an estimated $1.3 billion from ethanol alone in the 2007 fiscal year, up from $556 million this year, said David Driscoll, a food manufacturing analyst at Citigroup. ...
ADM has huge production facilities that dwarf those of its competitors. With seven big plants, the company controls 1.1 billion gallons of ethanol production, or about 24 percent of the country's capacity. ADM can make more than four times what VeraSun, ADM's closest ethanol rival, can produce.
Last year, spurred by soaring energy prices, the ethanol lobby broke through in its long campaign to win acceptance outside the corn belt, inserting a provision in the Energy Policy Act of 2005 that calls for the use of 5 billion gallons a year of ethanol by 2007, growing to at least 7.5 billion gallons in 2012. The industry is now expected to produce about 6 billion gallons next year. ...
Now, government officials are also pushing for increasing use of an 85-percent ethanol blend, called E85, which requires automakers to modify their engines and fuel injection systems.
In the ultimate nod to ADM's successful efforts, Mr. Bodman [Energy Secretary] announced the new initiatives in February at the company's headquarters in Illinois.
"It's been 30 years since we got a call from the White House asking for the agriculture industry, ADM in particular, to take a serious look at the possibilities of building facilities to produce alternative sources of energy for our fuel supply in the United States," said G. Allen Andreas, ADM's chairman and Dwayne Andreas' nephew. ...
Boom in Ethanol Reshapes Economy of Heartland
By ALEXEI BARRIONUEVO, June 25, 2006, New York Times
What's in the 2005 Energy Bill?
On the gasoline front, the big ticket item is subsidies for ethanol—as usual. Archer Daniels Midlands (ADM) owns 7 ethanol plants with a production capacity of 1,103,000,000 gallons per year. The ethanol tax subsidy is 51¢/gallon, so that comes to $562,000,000/year. (Now there's a lobbying effort that paid off.) But we need energy independence, right? Unfortunately, reducing fossil imports by the energy in 1 gallon of gasoline costs us a couple dollars in subsidies. (There is hope for better ethanol.)