New York
Times Covers the Ethanol Scam: Ethanol Mandates Spawn Credits That Enrich Wall
Street Speculators, Rip Off Consumers
The New York
Times ran a front page story Sunday on a new outrage
resulting from one of the biggest scams in America today, ethanol mandates, and
how they have made American consumers poorer, while enriching Wall Street
profiteers through ethanol credits. The story is entitled “Wall St. Exploits Ethanol Credits, and Prices Spike,” and
focuses on
the rapidly growing
role of Wall Street banks in gaming the ethanol credits market. Ethanol
credits (or RINs, as they’re called) were created by the Environmental
Protection Agency and Congress as a way to assure the inclusion of ethanol in
gasoline as an energy-saving measure. But gasoline producers who couldn’t or
didn’t want to include ethanol could buy credits from those who did. . . In
stepped the speculators, amassing millions of credits and making a killing on
the wide spread between the bid and ask prices of the credits. Predictably,
this drove the price through the roof: the credits, which cost 7 cents each in
January, peaked at $1.43 in July and now are trading for 60 cents.
The
net result is that consumers will pay at the pump, notes investment adviser David Kotok
of Cumberland Advisors. As he observes, ethanol
mandates are having very negative “geopolitical effects” as well. He
agrees that “Ethanol was a bad policy, primarily to buy and reward grain-state
votes. It spurred grain planting to meet the mandate, but not fast enough, so
prices called out for more. The poor were hurt overseas,” and unrest in the Middle
East ensued. As Kotok points out, ethanol is
a massive scam. Our national policy diverts 40% of the U.S. corn
crop (14% of the global corn crop) in order to produce a fuel that requires
almost as much energy to produce as it supplies. Our ethanol mandate has
starved millions of people; I’ve watched it with my own eyes in many countries
in my travels. A 2011 study by the National Academy of Sciences estimates that,
since 2007, the expanding U.S. biofuels subsidy has fueled 20%-40% of the
increase the world has seen in the prices for agricultural commodities. In a
country like Guatemala, that means that tortilla prices double and egg prices
triple. (Source: [New York Times]). Ethanol damages
engines, too — ask any user; I’ve seen it myself throughout the US, and Popular
Mechanics concurs [Link]. Corn ethanol has poisoned our planet
while it has lined certain private and politically connected pockets with
billions. It has succeeded in raising our costs, for minimal net energy gains.
. . .Global urban dwellers at the low end suffered again. . . .The spike
in prices this year was a reaction to the shortage in corn caused by the
drought last year. Rather than pay high prices for corn, blenders bought
stockpiled RINs. The real story of the market was the explosion from $0.02
per RIN, when nobody wanted them, to $0.07 in August 2012 when the short corn
crop became clear. This surge attracted the Wall Street players. They benefited
when corn prices spiked again in Jan-Feb on the perception that South America
crops would not clear the market before US crops came in in August-September. .
. .Please remember that this all starts in the corn-farmed, politically charged
Iowa caucuses. Which means, it is our sick and rotten political system that
produces these behaviors. That will likely continue until we repeatedly
and mercilessly pound the politicians who have sold our nation down a river of
ethanol.
At
Hot Air, Erika Johnsen notes that it is the government that created the “stupid ethanol-credit system.” She says that while ethanol mandates are
indeed harmful, the New York Times places too much of the blame on Wall Street,
and too little on the federal ethanol mandates that spawned trafficking in
ethanol by speculators. She observes that the profiteering and
price increases the Times decries are economically an
entirely predictable result of the
Renewable Fuel Standard, the regulation that requires U.S.
refiners to increase an ever-increasing volume of certain biofuels into the
nation’s gasoline supply. . . . the Obama administration has done everything they can to bolster and expand the RFS, and refiners must either
comply with the RFS or else purchase credits known as renewable identification
numbers (RINs) to effectively purchase an exemption. The ongoing political
biofuels-battle was ramped up a notch this summer as energy companies have been
cautioning that we’re running up against the “blend wall,” the 10
percent threshold beyond which they warn the blended fuels will no longer be
acceptable for most cars and trucks, which means demand for the credits have
been spiking and prices have been rising (also perhaps exacerbated by the fact
the the EPA has been trying to force companies to include a certain type of cellulosic ethanol that isn’t actually commercially available in the necessary quantities.
. .
She
says that “the solution for this absolutely not-clean, not-green, corporate-pork-tossing
government program, complete with plenty of unintended consequences (like, say, rising food prices .
. . )” is ”to repeal the mandate and hence stop creating an
artificial market that forces U.S. consumers to purchase something they
obviously don’t want to buy,” not to complain about the inevitable and
“perfectly legal” trading by Wall Street speculators in response to these
ethanol mandates.
The
Obama Administration clings to ethanol mandates, backing
them despite growing evidence that they increase world hunger and mortality, and harm
the environment. As the Wall Street Journal noted, in October 2011,
the Competitive
Enterprise Institute and Action Aid petitioned the EPA to review the so-called
renewable fuel standard that mandates that 13.8 billion gallons of corn ethanol
be blended into the gasoline supply next year. The free-market think tank and
global hunger charity argued that the EPA’s technical regulations implementing
the mandate did not meet “basic standards of quality” [since] EPA failed to
consider multiple peer-reviewed studies documenting the link between ethanol
and world hunger in its public health literature review, as required by law.
That includes one paper that concludes that biofuel mandates are responsible
for at least 192,000 premature deaths every year. Overall more people die from
chronic hunger world-wide than malaria, tuberculosis and AIDS combined.
EPA
disregarded this evidence, and denied the petition after a fourteenth-month delay.
In
2008, a Washington Post editorial by two prominent
environmentalists described how ethanol mandates have harmed the environment and spawned hunger across the
world. In “Ethanol’s Failed Promise,” Lester Pearson and
Jonathan Lewis observed that “Turning one-fourth of our corn into fuel is
affecting global food prices. U.S. food prices are rising at twice the rate of
inflation, hitting the pocketbooks of lower-income Americans and people living
on fixed incomes. . .Deadly food riots have broken out in dozens of
nations in the past few months, most recently in Haiti and Egypt. World Bank
President Robert Zoellick warns of a global food emergency.”
Moreover, they
noted,
food-to-fuel mandates are leading to increased environmental
damage. First, producing ethanol requires huge amounts of energy — most of
which comes from coal. Second, the production process creates a number of
hazardous byproducts. . .Third, food-to-fuel mandates are helping drive up the
price of agricultural staples, leading to significant changes in land use with
major environmental harm. Here in the United States, farmers are pulling land
out of the federal conservation program, threatening fragile habitats. . .Most
troubling, though, is that the higher food prices caused in large part by
food-to-fuel mandates create incentives for global deforestation, including in
the Amazon basin. As Time Magazinereported this
month, huge swaths of forest are being cleared for agricultural development.
The result is devastating: We lose an ecological treasure and critical habitat
for endangered species, as well as the world’s largest ‘carbon sink.’ And when
the forests are cleared and the land plowed for farming, the carbon that had
been sequestered in the plants and soil is released. Princeton scholar Tim
Searchinger has modeled this impact and reports in
Science magazine that the net impact of the food-to-fuel push will be an
increase in global carbon emissions — and thus a catalyst for climate change.
In Human Events,
Deroy Murdock chronicled how rising food prices resulting from ethanolforced
starving Haitians to literally eat dirt (dirt cookies made of vegetable oil,
salt, and dirt), and fueled violent protests in unstable “powder kegs” like
Pakistan and Egypt. More recently, biofuel mandates have fueled hunger and malnutrition in Guatemala.
The Obama
Administration has forced up the
ethanol content of gasoline, heedless of the fact that ethanol makes gas costlier
and dirtier, increases ozone pollution, and increases the death toll from smog and air pollution. Ethanol mandates
also result in deforestation, soil erosion, and water pollution.
By driving up food prices, they have fueled Islamic extremism in Afghanistan,Egypt, Yemen and other poor countries in the
Middle East. The Obama Administration persists in supporting ethanol mandates despite widespread criticism from
experts across the politicalspectrum.
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