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By Robert Rapier on Jul 4, 2008 with no responses

Show Me

I got a kick out of this story from the newest issue of Subsidy Watch:

New research from Missouri refutes allegations that ethanol mandates save money

A report from a Missouri-based research organization debunks the claim that Missourians are saving money through a state law requiring that retail gasoline contain a minimum of 10% ethanol. The report is in reaction to an assertion by the Missouri Corn Merchandising Association (MCMA), alleging that Missourians will save more than US$ 285 million through the E-10 mandate in 2008, and nearly US$ 2 billion over the following decade.

The MCMA arrived at these numbers by taking the price difference between pure-grade gasoline and E-10 blended fuel, and multiplying it by Missouri’s projected annual consumption.

However, the report by the Show Me Institute reveals two fundamental flaws with this calculation. One is that it fails to take into account the fact that E-10 blended fuel is cheaper because ethanol producers receive tax credits and other subsidies.

“Government officials cannot simply take tax dollars from the public, give those tax dollars to ethanol blenders, and then have ethanol supporters tell the public that ethanol is saving them money with cheaper fuel as though the subsidy never existed,” write the report’s authors, Justin P. Hauke and David Stokes.

The MCMA also does not take into account that E-10 blended fuel is about 2.5% less efficient than pure-grade gasoline, meaning that Missourians will be filling their tanks more often.

When both of these factors are taken into account, the ethanol blending mandates are shown to be costing Missourians about US$ 118 million per year.

“Although Missourians may pay nominally less for gasoline at the pump after the E-10 mandate, these savings will not reflect the actual cost Missourians would pay in complying with new ethanol fuel standards,” write the authors. “Ethanol subsidies are not free money — they are simply a wealth transfer from one taxpayer to another.”

The full report, “The Economic Impact of the Missouri E-10 Ethanol Mandate”, is available on-line by clicking here.

I hear these kinds of stories all the time. The corn/ethanol lobby wants credit for gasoline not keeping up with escalating oil prices (claiming it is ethanol that is keeping gasoline prices from keeping pace, but ignoring of course the fact that gasoline demand is softening due to the high price). They do not, however, want anything to do with claims that they have had an impact on food prices. So they won’t be happy about this:

Biofuels behind food price hikes: leaked World Bank report

LONDON (AFP) – Biofuels have caused world food prices to increase by 75 percent, according to the findings of an unpublished World Bank report published in The Guardian newspaper on Friday.

The daily said the report was finished in April but was not published to avoid embarrassing the US government, which has claimed plant-derived fuels have pushed up prices by only three percent.

The report’s author, a senior World Bank economist, assessed that contrary to claims by US President George W. Bush, increased demand from India and China has not been the cause of rising food prices.

“The report estimates that higher energy and fertiliser prices accounted for an increase of only 15 percent, while biofuels have been responsible for a 75 percent jump over that period.”

Expect the RFA to mobilize for a response in 3, 2, 1….

And Happy 4th to those of you who celebrate it. I plan to get away from the computer today.