Fuel Groups Duel Over Ethanol & Energy Policy

Fuel Groups Duel Over Ethanol & Energy Policy

Iowa Renewable Fuels Association says the Americans for Prosperity organization is hypocritical, out-of-date and inaccurate on ethanol policy.

The Iowa Renewable Fuels Association on May 9 called on the Americans for Prosperity organization to stop the hypocrisy and to get its facts straight when it comes to ethanol and oil policy. AFP, a Super PAC, is hosting a "Refueling America" town hall meeting in Des Moines on May 11.

AFP is a conservative, anti-Obama political action committee that has taken particular aim at the president's green energy subsidies and programs. The AFP event in Des Moines and AFP's policies are being promoted as an opportunity "to hear about real solutions that will create thousands of jobs and reduce energy costs."

Fuel Groups Duel Over Ethanol

"AFP's energy policy should come with a whiplash warning," says Monte Shaw, executive director of the Iowa Renewable Fuels Association. "They start by saying the government should not pick 'winners and losers' and then AFP turns around and promotes favorable tax subsidies for the oil industry. Whenever a pro-oil group like AFP comes into Iowa spreading inaccurate or out-of-date information, IRFA will be here to set the record straight."

Americans for Prosperity favors special treatment for oil while attacking ethanol

AFP's website is replete with numerous inaccurate and out-of-date attacks on ethanol while hypocritically supporting oil industry specific tax subsidies. Even more telling, at no time has the so-called "free market" group called for an end to the federal petroleum mandate that prevents consumers from choosing the fuel of their choice.

"AFP's hypocrisy is astounding," continues Shaw. "On the same page they criticize the now expired ethanol tax credit, AFP argues for the continuation of intangible drilling cost expensing. That tax subsidy can only be claimed by those drilling oil wells and has been around since 1913, the inception of the modern federal tax code. When will oil be ready to stand on its own two feet without a taxpayer crutch?"

Shaw concludes: "At the same time AFP criticizes the federal renewable fuels standard, or RFS, they remain silent on the federal petroleum mandate, which forces the vast majority of consumers to purchase fuels that contain at least 85% petroleum or face massive federal fines. In reality AFP is working to keep federal energy policy tilted heavily in favor of oil."

IRFA promotes ethanol and biodiesel, AFP is a group that favors fossil fuels

Iowa is the nation's leader in renewable fuels production, notes Shaw. Iowa has 41 ethanol refineries capable of producing nearly 3.7 billion gallons annually. In addition, Iowa has 13 biodiesel facilities with the capacity to produce 320 million gallons annually. The IRFA was formed in 2002 to represent the state's liquid renewable fuels industry. The trade group fosters the development and growth of the renewable fuels industry in Iowa through education, promotion, legislation and infrastructure development.

"Americans for Prosperity" Fact Check

The following statements are found on the Americans for Prosperity website. Monte Shaw of the Iowa Renewable Fuels Association provides the following "fact check" of these AFP statements and explains why they are inaccurate and what the truth really is when it comes to comparing ethanol, biodiesel and other renewable fuels to petroleum-based energy sources such as oil and other fossil fuels.

AFP: "Americans for Prosperity advocates a tax code that…is designed to generate revenue for the government, not one that picks winners and losers in the market."

Fact Check:  Inaccurate

Truth:  On the same webpage, AFP advocates continuing the 100-year-old tax subsidy to oil companies known as intangible drilling cost expensing. That tax subsidy "picks" the oil industry for favorable tax treatment compared to alternative sources of energy.  Through this practice, Western Capital Energy Development notes that "the risk capital is effectively subsidized by the government by reducing the participant's federal and possibly state income tax." www.oilandgasjointventures.com/tax-benefits.html

AFP:  "AFP supports the elimination of tax code provisions that are designed to advantage one entity over another…"

Fact Check:  Inaccurate

Truth:  See above.

AFP:  "AFP opposes using the tax code to attack oil and natural gas producers that are simply using the same tax deductions that are broadly available to everyone else…"

Fact Check:  Inaccurate

No one but oil companies can claim the following existing tax subsidies:

  • Percentage depletion allowance
  • Marginal oil well incentives
  • Enhanced oil recovery credits
  • Intangible Drilling Costs expensing
  • Deduction for tertiary injectants
  • Exception from passive loss limitations for oil and gas
  • Oil and gas excess percentage over cost depletion

AFP:  Intangible Drilling Costs:  "Allowing these deductions is not a subsidy as critics claim, it is supporting research and development just as the tax code allows all businesses to do."

Fact Check:  Inaccurate

Truth:  This tortured logic claims that oil drilling business expenses (wages, fuel, supplies, etc.) should be treated as R&D expenditures because half the oil wells come up dry. Well, half of new restaurants go broke relatively quickly, so under the same logic all their expenses should be treated as R&D also. In reality, it is a special handout to the oil industry that even the participants call a subsidy (see Western Capital Energy Development statement above).

AFP:  "The Volumetric Ethanol Excise Tax Credit (VEETC) currently provides a refundable tax credit of 45 cents for each gallon of ethanol blended into gasoline."

Fact Check:  Outdated

Truth:  VEETC expired Dec. 31, 2011. AFP is currently spending millions of dollars on television ads and big events, but apparently doesn't have $50 to update its website. Or maybe they maintain this type of outdated information in an attempt to mislead the policy debate and to defend the ongoing oil tax subsidies. Only AFP knows for sure.

AFP:  "The import tariff on foreign ethanol…shield domestic ethanol producers and drive up prices by blocking the more cost effective sugar-based ethanol from abroad."

Fact Check:  Outdated and Inaccurate

Truth:  Today, corn ethanol is the lowest cost transportation fuel in the world. The U.S. is the world's leading ethanol exporter because oil companies are blocking its increased use in the U.S. (preventing a free market) and because U.S. corn ethanol is lower cost than sugar-based ethanol. In fact, the number one importer of U.S. ethanol is Brazil, the largest producer of sugar-based ethanol.  Further, the offsetting tariff on ethanol imports expired on Dec. 31, 2011 along with VEETC. In reality, the offsetting tariff simply ensured that VEETC would spur domestic fuel production, not foreign producers.

AFP:  Criticizing it as a "protectionist measure" AFP states: "Using a Renewable Fuels Standard, the federal government mandates that America use 35 billion gallons of ethanol by 2022."

Fact Check:  Hypocritical

Truth:  Although calling themselves advocates for the free market, AFP never criticizes the federal petroleum mandate or the Big Oil fuel distribution monopoly. [Click here to learn more]  In the face of these anti-free market barriers, the RFS is the best tool we have to help open doors for ethanol and to provide consumers with actual fuel choice, the bedrock of a truly free market.

AFP:  Calling it a subsidy, AFP notes:  "The Agriculture Department has also provided matching funds to investors installing blender pumps at refueling stations that dispense ethanol instead of gasoline.

Fact Check:  Hypocritical and Inaccurate

Truth:  The USDA program incents the installation of blender pumps, which provide the consumer the choice of various gasoline and ethanol blends. This actually enhances the free market by breaking down the gasoline monopoly. But while criticizing this program, AFP remained quiet on anti-free market policies, such as:

  • Federal loan guarantees for petroleum pipelines (only petroleum, not alternative fuels)
  • Big Oil "branded" contacts that do not allow local retailers to offer ethanol blends above E10
  • Big Oil using their distribution monopoly to freeze out competing fuels
  • Big Oil using both legislative lobbying and lawsuits to try to prevent the introduction of E15 into the marketplace.  A blatant attempt to prevent free market competition.

AFP:  "Despite 30 years of favorable treatment the ethanol industry has achieved little."

Fact Check:  Inaccurate

Truth:  Compared to the generous tax subsidies, loan guarantees, federal petroleum mandates, and fuel distribution monopolies enjoyed by Big Oil, it is hard to think of ethanol as having received "favorable" treatment. In fact, Mark Cussen at Investopedia states: "No other investment category in America can compete with the smorgasbord of tax breaks that are available to the oil and gas industry." www.investopedia.com/articles/07/oil-tax-break.asp#13068728219222&close)

In the face of the most powerful industry in this country's history and despite federal policy being tilted in favor of oil for over 100 years, the ethanol industry has achieved a great deal:

  • Ethanol now displaces 10% of U.S. gasoline consumption.
  • Ethanol accounts for 81% of new domestic fuel production since 2005.
  • U.S. oil dependence dropped from a high of 60% in 2005 to only 45% in 2011, roughly half of that drop attributable to ethanol use.
  • Ethanol is now 25% of all domestic fuel production for gasoline vehicles.
  • Ethanol displaces 485 million barrels of foreign oil.
  • Ethanol supports over 400,000 U.S. jobs.
  • Ethanol boosts U.S. family income by $30 billion.

AFP: "Diverting corn from food to fuel has increased food prices for everything from cereal to dairy to meat to poultry, taking a bite out of the wallets of American families."

Fact Check:  Inaccurate

Truth:  Higher corn prices do impact some food products, but it's a miniscule impact on consumers compared to the costs imposed by higher energy prices. According to the updated food dollar chart from the USDA, today only 11.6 cents of each dollar spent on food goes to a farmer.  And less than 3 cents of that goes to a corn farmer.  In addition, it is important to consider the impact of ethanol use on the price of fuel. Last year economists at Iowa State University found that ethanol use reduced the average gasoline price in the Midwest by $1.37 per gallon. There is simply no doubt that the typical American family saves hundreds of dollars a year thanks to ethanol when you account for both food and energy costs.

AFP:  "Ethanol's supposed environmental benefits have also been called into question, prompting several environmental groups to actively oppose the subsidies."

Fact Check:  Hypocritical and Inaccurate

Truth:  It is interesting to note the AFP doesn't hold a high opinion of these environmental groups when discussing other issues like global climate change, coal emissions and property rights.  Regardless, ethanol blends are better for the environment than gasoline:

  • Ethanol has a higher energy balance than gasoline.
  • Ethanol uses less water to produce than gasoline.
  • Ethanol reduces greenhouse gas emissions compared to gasoline.
  • Ethanol reduces toxic tailpipe emissions compared to gasoline.
  • Ethanol reduces particulate matter emissions compared to gasoline.
  • Ethanol is renewable and biodegradable.

AFP: "But more than 30 years later we must conclude that ethanol has not lived up to the hype. The government support has done little to reduce oil imports or drive down prices at the pump…Diverting corn from the food supply has also been linked to higher food prices Americans are currently seeing on their dinner tables."

Fact Check:  Wrong. Wrong. Wrong. Wrong.

Truth:  See above.

AFP:  "AFP also supports eliminating the third way the federal government props up consumer demand for ethanol beyond what the market would bear: the Renewable Fuels Standard."

Fact Check:  Hypocritical and Inaccurate

Truth: AFP refuses to oppose the federal petroleum mandate that forces most consumers to buy a fuel that is at least 85% petroleum or face massive government fines. Also, while the RFS does exist to counter-balance the numerous governmental subsidies for oil, it is interesting to note that in every year since the RFS was enacted, ethanol use in the U.S. has far exceeded the RFS floor. In other words, despite all the benefits oil receives, the market is still demanding more ethanol than the RFS would require. It would be accurate to state that the RFS has yet to "force" one gallon of corn-ethanol into the marketplace. In fact, with wholesale ethanol prices substantially below gasoline prices, if the federal petroleum mandate were removed, there is simply no question that domestic ethanol use would be higher today than it is.
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