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Further analysis of ethanol issue

December 8, 2012
The Journal

To the editor:

We agree with The Journal: it's time to review the requirement for ethanol. (See The Journal: "Time to review ethanol requirement", November 26, 2012). With ethanol, just as with other biofuels, a review can shed some light on the facts. The Journal raises a few issues worthy of further analysis.

Subsidies! The Journal suggests that subsidies are linked to ethanol and that this adversely impacts food prices. Interestingly, according to the Environmental Law Institute, federal subsidies for fossil fuels, not ethanol, is approximately $70.2 billion based on direct payments and tax breaks. Contrast this with Minnesota's biofuel industry.

In the past, the Federal Volumetric Ethanol Excise Tax Credit included a 45-cent a gallon credit for gasoline blenders. The credit went to the likes of Flint Hills of Minnesota, not the local ethanol plants. To jump start a renewable energy industry that uses locally produced renewable ingredients and now supports 12,600 jobs, some Minnesota ethanol producers did receive Producer Payments. According to the Minnesota Department of Agriculture the Return on Investment from 1990 to 2011 for Minnesotans is 813 percent. In other words, every dollar that was invested in homegrown renewable energy generated more than $8 for the state economy.

The Journal is correct in suggesting a link between energy costs and food costs. But is it ethanol or crude oil that actually drives the cost of food? To test whether ethanol is the driver, map food prices using the United Nations' Food Price Index with the World Crude Oil Price from the Energy Information Administration. Then remove the variable ethanol from the equation. The result: a nearly one-to-one correlation between crude oil prices and food prices. That is, the price of crude oil drives food prices higher. As crude oil prices climb, so to does the price of food climb.

While The Journal correctly states the U.S. EPA recently assessed the economic impact of the Renewable Fuel Standard, The Journal misses the punch line: Of 500 scenarios analyzed, 11 percent showed some potential impact with the average impact of 7 cents per bushel or less than 1 percent change in corn prices. This is far from the "skyrocketing" affects suggested by The Journal.

A review of the ethanol and Renewable Fuel Standard requirements is timely. The production of renewable fuel is good for Minnesota Farmers and consumers. Producing renewable biofuel in Minnesota keeps 5 billion energy dollars in Minnesota and, based on research from the Universities of Iowa and Wisconsin, holds the price of gasoline down by about $1.69 per gallon.

Timothy J. Rudnicki, Esq.

Executive Director

Minnesota Bio-Fuels Association, Inc.




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