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 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/
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.
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.”