Myth No. 6: Ethanol Gets More Subsidies than Oil

 

When I wrote “5 Ethanol Myths Exposed – as Crap!” a few days ago, I knew that it would upset some people (cognitive dissonance, and all that), but I was more surprised by the number of people leaving comments like this one, below, left by Steve Shurts.

Your article (re. Argonne’s study) ignored the real criticism I have of ethanol – cost. The Feds subsidize production of ethanol based fuels to the tune of a $1.00/gallon of ethanol. If the consumer were paying this cost, the cost of E-fuels would be higher than strictly petroleum-based fuels. As these subsidies go away, we will find out how desirable it is to run fuels which cost more than gasoline and have the potential to damage some older engines.

Steve is a regular commenter on energy/oil posts (one of the most entertaining, in fact), and he’s not alone.  Several regular readers pointed out that ethanol subsidies helped lower the price of ethanol-based fuels, and concluded that, without those subsidies, ethanol would be too expensive to compete with gasoline.  That conclusion (of course) is crap!

Luckily for me, I won’t have to do any of the compiling of facts, figures, and awesome graphs (like the one above), because Cleantechnica editor Zach Shahan’s already done all the heavy lifting in a series of articles he wrote comparing various energy subsidies.

Zach writes that “oil got more money in tax breaks in 2011 alone ($4 billion) than the wind industry had received in total up to 2007 ($3.75 billion), and it is expected to get $77 billion more by 2021.”  Zach goes on (in page 3 of his article) to expose more oil subsidies, which I’ve shared, verbatim, below.

Daniel J. Weiss and Valeri Vasquez had an excellent piece recently on the “facts of Big Oil’s tax loopholes and windfall profits.” The whole piece is worth a read and shows why, despite broad public support (including Republican voter support) for ending oil and gas company subsidies, the companies continue to receive billions from US taxpayers (hint: institutionalized political bribery). However, I’m just going to pick out the bit on Big Oil tax breaks (which were kept in place this year primarily by Republicans in Congress):

  • $4 billion: Cost of Big Oil tax breaks in 2011.
  • $2 billion: Cost of Big Oil tax breaks eliminated by S. 940.
  • $77 billion: Cost of Big Oil tax breaks from 2011 to 2021.

Big Oil has raked in billion in tax breaks for decades, but I am not sure of any specific total.

Keep in mind, also, that Zach doesn’t count the costs of keeping US troops in the oil-rich Persian Gulf region, which would push the “indirect subsidy” number for oil well past the TRILLION dollar mark.

So, by all means reduce or remove government subsidies on ethanol – but do the same for oil, and (while you’re at it) bring the troops home.

SourcesCleantechnica, Cost of War.





About the Author

I’ve been in the auto industry 1997, and write for a number of blogs in the IM network. You can also find me on Twitter, at my Volvo fansite, or chasing my kids around Oak Park, IL.

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  • I want to know how much the petroleum subsidies are per gallon so that we can compare apples and oranges.

    • Don’t forget, also, that 10% of US fuel is ethanol, so the math is even more convoluted.

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  • Ditto for Warren’s comment. Here’s a quick attempt:

    2011 subsidy: $4 billion
    2009 consumption: 18,690,000 barrels/day; 6,821,850,000

    2009 was the most recent I could find, so this is really rough, but, that means that the subsidy is under $0.59 per BARREL. & we get about 19 gallons of gasoline from each barrel of oil. So, that makes it $0.03 per gallon.

    In what warped reality is $1.00/gallon less than $0.03/gallon?

    • And don’t forget that some of those “subsidies” are writeoffs that every business gets. Things like carryover losses from previous years, various expenditures, etc. Of course that probably doesn’t include the subsidies that go more directly to consumers, things like cheaper (lower tax rate) farm diesel.

      Oh, since a barrel of oil is 42 gallons, it’s about $0.014 per gallon of oil if we don’t attribute all the subsidy to gasoline.

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  • Jo, glad to hear you think I’m entertaining, I think…

    I will not dispute the “evidence” presented by your friend, Zach. Let’s accept his data at face value. Let’s also assume that the direct tax subsidies for big oil is $13,000,000,000 (Neither Zach’s article or yours gives a dollar value, but the graph gives me a reason to estimate). I am going to ignore the “tax break” aspect of the his presentation, and here’s why:

    1. US annual income for oil companies is running about $1.1 trillion dollars, while ethanol is at $36,004,000,000 (roughly 3% of oil).

    2. Oil employees 9,200,000 people and according to an alternative fuel blog, ethanol employees directly and indirectly, 76,000 people (http://ethanolrfa.3cdn.net/ead8969103e34f640b_i7m6ii0se.pdf).

    3. Oil pays an effective tax rate of 48.4% of income as taxes (almost all other corporations listed on the S&P pay a 28.1% tax rate). Ethanol pays approximately $1,200,000 per year in state and local taxes and receives tax credits for federal taxes (a net cost to the US tax payer).

    According to the American Fuels Blogspot (http://americanfuels.blogspot.com/2010/04/2009-gasoline-consumption.htmlhttp://americanfuels.blogspot.com/2010/04/2009-gasoline-consumption.html), US gasoline consumption for the year 2009 was 137,916,660,000 gallons, or $0.09 per gallon. For the same period, ethanol production was 11,143,272,000 gallons, or $0.37 cents per gallon. Oil gets no tax credit and ethanol gets $0.57 per gallon. This brings total subsidies for oil to $0.09; and, for ethanol, it is $0.90.

    BTW, I am not related to the Steve Shurts that founded an oil company, I am a lowly programmer that happens to be a car geek. Also, let me say that I have no love for big oil companies (I notice that you did not link back to any time I made nasty comments about them…). I believe that there is a lot of collusion between oil companies in the setting of gasoline prices, etc. But less face it, in the big scheme of things, energy is a necessity and until we come up with a better idea, we are stuck with them, even if they are a bunch of jerks.

    • And your point is ?

    • A little addendum…

      I forgot to mention (MaxHedrm, did however) that the item that Zach identifies as Tax Breaks are not exclusive to oil companies. They are available to every company that doees business in the United States. While the oil companies tax breaks may seem outrageous, when compared to wind, alcohol, etc., if oil were getting the same rate as ethanol based on the income, big oils “tax breaks” would need to be $2.2 trillion dollars, twice their income. So, do you really want an “equal” playing field?

    • You can’t consider all gasoline consumed by the US unless you plan on subsidizing every company that imports to US. According to the below website the “U.S. Product Supplied of Finished Motor Gasoline” is 3,297,529,000 gallons. With them getting a $4 Billion dollar subsidy that would equal out to $1.21 per gallon. Looks like your numbers are a little off!

      http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MGFUPUS1&f=A

      • John, you need to re-read your link… That data is in barrels, not gallons. You get 42 gallons of gas from each barrel of oil that is processed for fuel. (That doesn’t include the various other by-products from that barrel of oil, such as plastics, drugs, etc. – but, I digress). So, if I use your figures, that actually comes out to about $0.03 – a third of mine.

        Pay closer attention – and, you bought the numbers without checking Jo?!?!

        • Don’t think this went thru so thought I would repost.

          Sorry about my number mistaked but if you are going to point out my mistakes you might want to re-read your post. You get 42 gallons of oil per barrel…..which they convert about 19 to gasoline. So my numbers are off but what does an industry that commonly sees Billion $$$ profits need government backing for anyway?

        • You’re the moron because void of all the numbers and calculation you cite you forget the biggest number of all which is the taxpayer subsidies via the u.s. military.

    • You never disappoint, man!

    • “Oil pays an effective tax rate of 48.4% of income as taxes”

      This is a bogus number, because it pretends that ROYALTIES are taxes. Royalties is how much an oil company pays the land owner for each barrel of oil they take from the land owner. This is NOT a tax!! This is the rightful and correct payment for goods received. Having oil companies take that oil for free would be theft. Sadly, one of the gov’t handouts that oil companies get is exactly that. Free barrels of oil that are given to them without royalty. Those are barrels of oil that you and I own, that are being given for free to the largest profiting company ever in modern history as a handout.

      The pro-oil lobby is doing an imitation of “Thank you for Smoking” movie character Nick Naylor when they pretend that payments for goods received is a Tax just because the land owner is you and me.

      So Steve, the question is whether you are playing Nick Naylor on purpose? Or are you just a witless dupe?

      • Nixon, are you a left-wing progressive hack, or just a freaking moron?

        The “royalties” do not show up in my bank account; they show up in the coffers of the federal government and are used as any other general revenue (tax) is used. (You really need to lay off the Kool-Aid.) Specifically, the largest amount goes to the U.S. Treasury followed by the Land and Water Conservation Fund (another federal government entity) and, finally, the states.

        • I see. You are Steve “Nick Naylor” Shurts on purpose. Professional liar.

          The royalties show up in your bank account in the form of bigger tax refunds every April. If no royalties were ever paid, we would all have to pay MORE taxes to offset the income. Meanwhile, the oil companies who got the oil for free would make massive profits off of OUR oil. This is more privatizing profits, while socializing expenses.

          Every time an oil company steals oil for free without paying royalties, you and I are hit in the bank account in the form of higher national debt that OUR CHILDREN will have to pay with interest.

          It is a beautiful business model you’ve got there Mr. Nayler/Shurts. If I were able to get my product for free from the US Tax Payers, then re-sell it right back to them at record-breaking profits, I’d be rich too. Not all money paid into the Treasury is a Tax. There are payments and fees in exchange for goods also. Royalties are a PAYMENT for goods received, not a tax!!

          • Okay… It’s obvious who you are – you are not a moron, which really would have given you an excuse for your socialist BS rantings. You are actually a left-wing Socialist hack. I hope the readers of this blog can judge for themselves who actually is spouting propaganda and who is trying to bring some factual basis to the discussion.

        • If you were a private land owner with mineral rights they would show up in your pocket book as royalties. The federal/state tax would then be applied at the normal rates. When the oil industry is mining oil from land that the US owns the mineral rights to they need to pay royalties to the US and the tax to the US. Attributing both as tax is incorrect.

          • You nailed it.

            And US tax code has ALWAYS treated Royalties as an expense, not a tax.

            That doesn’t stop oil companies from exploiting loopholes.

            Here is an article that goes all the way back to the 1950’s and describes how royalties are NOT taxes. It also tells an interesting story about how Steve’s buddies in the oil industry have been ripping of the US people using tax dodges for more than half a century!

            http://www.time.com/time/magazine/article/0,9171,809461,00.html

            “The difference is important. Royalties paid abroad can be deducted as business expenses before a company figures the net on which it pays U.S. taxes; direct foreign taxes, on the other hand, can be deducted from the tax bill itself, thus greatly reducing—or wiping out—the company’s U.S. tax liability.”

    • The biggest problem with your math is you’re not considering all the tax breaks and subsidies the oil companies actually get. All of the following in this country and several other countries are subsidised by American taxpayer dollars; every oil drilling platform, every oil pumping platform, every oil pipeline, every oil refinery, every oil exploration operation(even the ones that dont find oil),every repair to drilling platforms, pumping platforms,pipelines and refineries.

      When the oil companies decided to install greatly improved security systems at all their sites after 9-11, we the taxpayer subsidised every system installed. They don’t pay for anything entirely themselves. If you add up every one of your tax dollars that go directly to the oil companies and every tax dollar that goes to pay for the healthcare of people whose health was destroyed by working with oil and gas or just breathing the fumes that we all pump out every day, you have been paying between 10 and 15 dollars for every gallon of gas you buy. Now that is alot of subsidies.

  • Chris

    The 45 cent subsidy is given to refiners to blend ethanol, so it does not make it back to the producer or farmer.

    All numbers aside that have been shared about tax breaks, the ethanol price on the Chicago Board of Trade is not impacted by the subsidy, or else ethanol WOULD trade above RBOB Gasoline much more often. Ethanol blending is still profitable even without the subsidy, and that is with $7 corn.

    As long as the Global crude demand stays strong and the price stays relatively high, ethanol does just fine as a cheaper blendstock than the gasoline it is blended with, even with no subsidy.

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