An Ethanol Bailout?

And we thought we’d seen everything.

Along with Russia, Venezuela, Iran and the Dubai property market, add another name to the list of bubble economies hurt by the falling price of oil: the ethanol industry. And naturally, the ethanol lobby is looking for a bailout on top of its regular taxpayer subsidies.

The commodity bust has clobbered corn ethanol, whose energy inefficiencies require high oil prices to be competitive. The price of ethanol at the pump has fallen nearly in half in recent months to $1.60 from $2.90 per gallon due to lower commodity prices, and that lower price now barely covers production costs even after accounting for federal subsidies. Three major producers are in or near bankruptcy, including giant VeraSun Energy.


So here they go again back to the taxpayer for help. The Renewable Fuels Association, the industry lobby, is seeking $1 billion in short-term credit from the government to help plants stay in business and up to $50 billion in loan guarantees to finance expansion. The lobby would also like Congress to ease the 10% limit on how much ethanol can be added to gasoline for conventional cars and trucks — never mind the potential damage to engines from such an unproven mix.

Of course, the ethanol industry wouldn’t even exist without the more than $25 billion in taxpayer handouts over the past 20 years. Congress only recently passed energy and farm bills that further greased ethanol production with a 51 cent a gallon tax credit, corn subsidies, plus increasingly stringent biofuel mandates. We were told, as usual, that profitability was just around the corner.

Wall St. Journal