Government incentivizes creation and disposal of CO2

Here is a letter I just sent to The Des Moines Register:

Thank you for reporting on the proposed carbon sequestration project by Summit Carbon Solutions.  (“Iowa company plans meetings on pipeline” 8/30/21)  This company exists only because they will receive tax credits for each ton of carbon sequestered.  And the carbon will come from ethanol plants that exist only because of federal and other tax incentives and the force of government which requires the blending of ethanol into gasoline.  So taxpayers and consumers are paying for both the creation and disposal of this carbon.  What a shame.

The battle among the crony capitalists!

I read the report in The Des Moines Register about the questioning of Tom Vilsack by Joni Ernst during the Senate hearings on Vilsack’s nomination for Secretary of Agriculture.  (Vilsack nomination moves to full Senate” 2/3/2021)  President Biden has ordered the development of a plan to convert all federal, state, local and tribal vehicles, including Post Office vehicles, to “clean and zero-emission vehicles.”  Ernst asked Vilsack if he will direct the USDA to buy Tesla trucks that run on electricity or Ford vehicles that run on 85% ethanol.  Vilsack, like a good politician, said it’s not ” an either-or circumstance.”  It will be interesting to see how Vilsack balances the interests of farmers and biofuels producers with the interests of the zero-emissions vehicle and power producers.  One thing is for sure: lobbyists will be in high demand.

Governor Reynolds supports crony capitalists.

Governor Reynolds has proposed legislation to make, “…biofuels the clear choice for Iowa drivers…”, by mandating a minimum of 10% ethanol in all gasoline and 11% biodiesel in all diesel fuel sold in Iowa.  (See link to Register report below.)  If her proposal becomes law, it would make biofuels the clear choice – because then there would be no other choice.

This is a shining example of how government works when a law or regulation has concentrated benefits and dispersed costs.  Those who receive the concentrated benefits, (in this case farmers and biofuel producers), will lobby heavily to get their benefits, while the cost to any individual is so small that it doesn’t justify the time or money to lobby against the legislation.  Then, those who receive the benefits become dependent on them and continue to lobby to ensure that the benefits never come to an end. Don’t call it free-market capitalism.  It’s called crony capitalism.  

Link to Register report – printed 1/27/21:  https://www.desmoinesregister.com/story/money/agriculture/2021/01/26/kim-reynolds-plans-require-10-ethanol-11-biodiesel-iowa-fuel/4259109001/

Don’t create government subsidized carbon credit program for farmers.

Contrary to the recent letter to the editor in The Des Moines Register from Rod Pierce, our government should not create or subsidize a carbon credit market in order to create an additional source of income for farmers.  It reminds me of the ethanol debacle.  Fifteen years ago our government created a market for corn-based ethanol by forcing fuel suppliers to add ethanol to gasoline under the misleadingly named Renewable Fuel Standard (RFS).  Farmers and ethanol producers fight tooth and nail to prevent our government from phasing out the RFS.   A carbon credit scheme could very well be another government program that will be costly to maintain and difficult to ever end.  Farmers become dependent on subsidies just like everyone else.  We don’t know what new technologies will emerge – just like no one predicted the shale oil boom in North Dakota.  Our government needs to stay out of the energy and agricultural markets.  Farmers will be on a surer footing when they don’t depend on government subsidies.

Link to Register letter from Rod Pierce: https://www.desmoinesregister.com/story/opinion/readers/2020/08/31/letters-trump-should-not-take-credit-potential-vaccine/5673834002/

Need to wean energy producers off of government support.

There has been a recent outpouring of letters to the editor and paid advertising in The Des Moines Register thanking President Trump for the EPA’s decision to allow E15 (gasoline with 15% ethanol) to be used year round.  Many go on complain about the hardship waivers being granted to small refineries that exempt them from being forced to add ethanol to their gasoline under the Renewal Fuel Standard (RFS).  They say the exemptions are costing corn farmers and ethanol producers billions of dollars and are undermining growth of the ethanol industry.

Since 2006, the RFS has required petroleum refiniries to add more and more ethanol to gasoline.  (For 2019 the requirement is over 19 billion gallons.)  Investment in and growth of the ethanol industry (and related corn purchases) have been greatly dependent on this use of government force.  After 13 years, the industry has billions of dollars invested in over 200 production facilities, revenues of over $16 billion per year.  Any yet, not only can it not wean itself off of government assistance, it continues to press government for more and more support.

Public Choice Theory tells us what to expect when government and special interests create an artificial market using government force.   As investment and revenues reach billions of dollars, vested interests easily justify spending millions of dollars lobbying Congress to make sure the support continues.  At the same time, each taxpayer pays such a relatively small amount that it is very difficult to raise money to lobby in opposition to these government programs.

But we must do what we can, so now is the time to urge Presidential candidates as well as elected representatives to work toward ending government subsidies and special support for all forms of energy.

Farmers are not special, and shouldn’t be given special preferential treatment.

The Des Moines Register recently recently ran an editorial advising us to not buy into the idea that Iowa farmers “feed the world”.  As the Register documented, “Only half of one percent of U.S. agricultural exports went to a group of 19 undernourished countries that includes Haiti, Yemen and Ethiopia.”  Some farmers and their supporters have a vested  interest in making sure that fellow citizens hold them in a special position because they produce the food we eat.  They perpetuate that meme in order to get special treatment by our government, for example by not having to either stop or pay for polluting our waters,  and by receiving a 60% subsidy on their crop/revenue insurance premiums, among many others.

Every week, most of us buy food from all over the world at our local grocery stores. It may be wonderful to be able to buy local fresh food, but it is not a necessity. International voluntary free trade is what has allowed us, and much of the rest of the world, to avoid starvation when local producers fail for any reason.  Farmers should be given no more credit than other producers of all kinds of products. As Adam Smith wrote in 1776 in his book, The Wealth of Nations, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

Link to Register editorial:  http://www.desmoinesregister.com/story/opinion/editorials/2016/10/09/editorial-dont-expect-iowa-farmers-feed-world/91735242/

Our liberties we prize? Our rights we will maintain?

Recent Iowa Polls have found: A majority of Iowans prefer to use the force of government to require fellow citizens to buy gasoline that has ethanol blended into it whether the buyer wants it or not.  A majority of Iowans prefer to treat fellow citizens as criminals if they use drugs that are not favored by the majority, even if such use harms no other person.  A majority of Iowans want to force businesses to pay a minimum wage, even though it means that the least skilled people may not be able to find work.  A majority of Iowans prefer to use the force of government to prohibit vaping in privately owned businesses, even if the owners, customers and employees prefer that it be allowed.  Iowa should change its motto to:  Our liberties we prize and our rights we will maintain, unless, of course, the current majority disagrees, even if you are a peaceful person and do no harm to others.

Carbon tax – don’t forget about ethanol and bio-diesel.

In his essay in The Des Moines Sunday Register (10/5/2014), Richard Doak used the example of British Columbia (BC) as a regional government that has gone out on its own and instituted a carbon tax.  He wrote that the carbon tax as been a success.  The revenue neutral tax has allowed BC to reduce personal and corporate income taxes to quite low levels.  He reported that in BC, “Economic growth is slightly better than the rest of Canada…”

He asked, “Why can’t Iowa be like that?”  Throughout the essay, Doak talked about taxing “fossil fuels”.  What he did not talk about was that fact that the BC carbon tax applies to ethanol and bio-diesel, because both contain carbon that is released into the atmosphere when burned.

When all aspects of production are considered, there is still a question about which fule, gasoline or ethanol, puts more carbon into the atmosphere.  At the time of combustion, ethanol puts about one third less carbon into the atmosphere than gasoline.  So, to the extent that there is discussion in Iowa or the U.S. about a carbon tax, the tax on ethanol should  be about two-thirds of the tax on gasoline.  It should not be zero.

Doak also talks about replacing the gasoline tax with a carbon tax to fund road building and maintenance.  He make the point that a tax on coal and natural gas, used to make electricity, will make users of electric cars pay their share for roads.  In almost any scenario of the future, electric cars will use a very small fraction of the total electricity output and will not come close to paying their fair share of road use.  Most of the cost of a carbon tax on coal and natural gas will be paid by households and businesses.  Doak is right that roads should be financed by users, but a carbon tax is not a good solution.

Link to Register article: http://www.desmoinesregister.com/story/opinion/columnists/iowa-view/2014/10/04/richard-doax-climate-change/16747421/

Ethanol credit speculation – for dummies

Speculators are being blamed for increases in ethanol RIN credits!  Renewable Identification Number (RIN) credits are issued to manufacturers for every gallon of ethanol that they blend into gasoline.  All manufacturers are required to meet targets for blending ethanol into their gasoline – in order to meet national Renewable Fuels Standards.  If they fail to meet their targets, they have to pay substantial penalties.  Some manufacturers exceed their targets so they have excess credits that they are allowed to sell.  Others fail to meet their targets and either have to purchase credits from other manufacturers or pay the penalties.  If, for the entire market, it appears there will be a shortage then the price of the credits will go up.  If it were possible for a few speculators to “corner the market”, then they might be able to hold out for higher prices.  But, the there were truly a shortage, then manufacturers who have excess credits could just as easily do the same.  In either case, this puts pressure on manufacturers to blend more ethanol.  If there is a shortage of ethanol, then the price of ethanol should rise.  If the price of ethanol rises than ethanol producers will try to increase their production to capture more profit.  In any case, the credits are doing what they are supposed to do: reward manufacturers who blend excess gallons and penalize those who blend less than their target.  If the entire market is below the target, then there will be incentives to produce more ethanol.  Speculators help the market to work as it was intended.  The real problem here is the entire Renewable Fuel Standards that uses force, in the form of money penalties, to make everyone use more ethanol than they would in a voluntary market.  This is a classic case of unintended consequences that occurs when people discover, as Friedrich Hayek wrote, “…how little they know about what they imagine they can design.”