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Ethanol Returns America's Investment Five-Fold
by Jonathan Eisenthal

In the year 2022, a 36-billion gallon-per-year ethanol industry will support a million jobs in the United States – high-paying jobs that won’t go to China, Mexico, or anywhere else.

Already, corn-based ethanol supports an estimated 494,177 jobs. In today’s economic climate, those jobs are a valuable commodity. The Bureau of Labor Statistics shows that the average hourly wage for ethanol jobs, $19.56 in 2008, is eight percent higher than the average hourly wage for private sector workers.

The income from those jobs, along with the farming, agribusiness, and energy wholesaling and retailing activities supported by ethanol – as well as the expenditures for raw materials, equipment, and construction of new facilities to make the ethanol – together make an economic engine that contributed $65.6 billion to the nation’s Gross Domestic Product in 2008, according to a recent economic study.

The American taxpayer’s investment in ethanol has been returned five times over through increased federal and state tax revenue, increased personal income, and the aggregated economic effect of buying domestically produced energy rather than sending dollars over our borders to foreign energy producers.

Economist John Urbanchuk, Director at the firm LECG, LLC, examined the federal outlays for the ethanol incentives along with all the ways that ethanol pays back to our economy. Using ethanol’s contribution to the Gross Domestic Product, he calculated the industry’s contributions to tax revenue.

While the Wall Street Journal examines the potential for billions of dollars in fraud proceeding from the $700 billion federal bank bailout, perhaps those writers should re-examine their ongoing jeering at the ethanol industry, which is quietly making positive contributions to the U.S. Treasury to the tune of billions of dollars per year.

“The combination of increased GDP and higher household income generated an estimated $11.9 billion in tax revenue for the federal government and nearly $9 billion of additional tax revenue for state and local governments,” according to Urbanchuk, who produced a report “Contribution of the Ethanol Industry to the Economy of the United States,” published February 23 by the Renewable Fuels Association for its annual conference.

Urbanchuk describes the bottom line: “The estimated cost of the two major federal incentives in 2008, the Volumetric Ethanol Excise Tax Credit (VEETC) and ethanol Small Producer Credit, totaled $4.7 billion. Consequently, the ethanol industry generated a surplus of $7.1 billion for the federal treasury. ”

In the past three decades, the return of the taxpayers’ investment in ethanol has been a fivefold.

Urbanchuk notes that the U.S. began offering incentives for ethanol production in 1978. Since those days of turning down the thermostat while we saw President Carter wearing his sweater in the Oval Office, ethanol has contributed $33.4 billion to federal coffers, a third of which came from the production of nine billion gallons of ethanol and building a score of new ethanol plants during this past year – an indication of the upward sweep in ethanol’s contribution to the U.S. economy.

And ethanol contributed another $17 billion to state tax revenues over that time period.

The benefit of buoyant grain prices for the farmer – partly due to the increase in demand from ethanol – has also been a benefit to the American taxpayer, Urbanchuk said, citing a recent report from Iowa State University.

“(The ISU report) estimated that the federal government saved $3.45 billion in 2007 alone because it was not making loan deficiency payments, as it was in 2005 and 2006,” Urbanchuk said. “Loan deficiency payments were established in 1985 as a way to protect farmer income when prices for commodities such as corn were abnormally low. Since 1998 the loan deficiency payment program has cost taxpayers more than $29 billion. USDA estimates that when loan deficiency payments are warranted due to low prices, every $0.10 per bushel increase in corn prices saves about $1 billion in loan deficiency payments.”

Though the economics of both farming and ethanol provided a real roller coaster ride in 2008, the ethanol still managed to dramatically increase its production capacity, staying ahead of the floors set by the Renewable Fuels Standard.

“Despite the challenge to profitability (in 2008) the ethanol industry continued to grow. Nationally, total ethanol capacity expanded 34 percent,” Urbanchuk reports.

Even in an adverse economy, the industry grew jobs. The new economic report notes that the increase in economic activity resulting from ongoing production, construction of new capacity, and R&D supported more than 494,000 jobs in all sectors of the economy during 2008.

Perhaps it is unsurprising that the ethanol industry, which utilized a quarter of the corn produced in the U.S. last year, supported 218,953 jobs in the feed grains industries. More surprising –ethanol supported 47,284 natural gas distribution jobs, 43,961 wholesale trade jobs, more than 18,000 jobs in organic chemical industries, more than 17,000 railroad jobs, and even 5,592 jobs in petroleum refineries.

Construction, which added 2.9 billion gallons of capacity in the course of 2008, supported 55,686 jobs, about equally divided between construction labor and all the folks who build and sell the machinery the builders use.

Research and Development spending is another major economic benefit of the ethanol industry, according to Urbanchuk. A total of $1.4 billion dollars were pumped into the scientific research that is creating higher efficiencies in corn ethanol and developing second-generation biofuels, often referred to as cellulosic ethanol. The lion’s share, a billion dollars, came from the industry itself, while government chipped in another $350 million and universities contributed about $70 million in funding. All told, this area of activity supported 29,025 high paying jobs in 2008.

Getting to a level playing field

The federal gasoline excise tax exemption for ethanol has ranged as high as 60 cents over the past 30 years, over that period averaging 55.1 cents per gallon. Starting in January, however, federal rules reduced the credit to 45 cents – another sign that the industry is maturing.

Experts point out there is still a long way to go until we get to a level playing field in the transportation fuels sector. Counting all of the tax write-offs, pro-rated costs of operating the ports where foreign oil enters the U.S., free use of federal lands and offshore areas for domestic oil production, and all the other benefits granted by the federal government, Big Oil receives far more government support than the ethanol industry.

According to WCCO-TV political reporter Pat Kessler, a $1.85 gallon of gasoline, without all the subsidies built in, would actually cost the consumer $5.85 cents (WCCO evening news “Reality Check” segment, aired February 5, 2009).

One tally puts the total of the U.S. government’s generosity to the oil companies at $335 billion since 1950. The comparable figure for all sources of renewable energy, including wind and solar as well as biofuels, is $45 billion. That estimate was developed by Management Services, Inc., a Washington-based analysis firm that prepared a report for a group that derives no profit from renewable fuels production, the Nuclear Energy Institute.

Urbanchuk estimates that, in 2008 dollars, the ethanol excise tax exemption has cost $30.4 billion since 1978. That’s less than a tenth of what has been paid to an already well-developed, hugely profitable oil production industry.

Cleantech.com made an estimate of $35 billion a year in freebies to Big Oil. Compare that to the VEETC and ethanol producers’ credit, which cost $4.7 billion. Cleantech.com is a venture capital network devoted to renewable energy and other solutions to global climate change, energy independence, food and water scarcity, and other challenges of the 21st century.

Also, it must be pointed out that the ethanol tax credit is not paid to ethanol producers, but rather to gasoline wholesalers and retailers – often those same Big Oil companies getting support for their petroleum products – to encourage them to use the greener, domestically produced ethanol fuel.

“Without the excise tax credit, gasoline blenders would have little or no economic incentive other than the octane value to blend ethanol,” Urbanchuk said. “Without this important incentive it is unlikely that the ethanol industry would have been able to compete with MTBE as an oxygenate to meet the carbon monoxide and RFG requirements of the Clean Air Act of 1990. However, between early 2007 and the fall of 2008, spot market ethanol prices were typically lower than wholesale gasoline prices, meaning a large amount of ethanol was being voluntarily blended as a relatively low-cost supply extender. The price differential, which sometimes reached as high as $1 per gallon, encouraged voluntary splash-blending and pre-blending and helped ethanol enter into new markets. Because of the price spread between ethanol and gasoline, E10 blends often retailed for 8 to 10 cents less per gallon than regular unleaded during this period.”

The picture in the next decade and beyond

Thanks to ethanol, Americans are seeing about $14 billion in savings at the fuel pump. And together with the income from the jobs generated by biofuels, and the expenditure of that income into local economies across the country, Urbanchuk’s research estimates that Americans are $66 billion a year richer.

The young renewable fuels industry is hopeful that U.S. policymakers at all levels of government will see past the increasing volume of spin from well-funded anti-ethanol interests, and remember the interests of the American people in the next decade and beyond. The $7 billion surplus to the U.S. treasury should help them remember.

The key to continued growth in the return on this investment is the Renewable Fuels Standard, which providing a floor for biofuels growth through 2022. The corn ethanol industry will increase half-again in size, reaching a statutory maximum of 15 billion gallons per year in the year 2015, and beyond that next generation fuels pick up the baton and carry growth forward to a total of 36 billion gallons per year in 2022. Urbanchuk estimates that in the next 13 years, following this course will add $1.7 trillion to the Gross Domestic Product, generate $209 billion in additional tax revenues and put $436 billion more dollars into the hands of Americans.

That’s a return worth the investment.

For more information:

Visit www.ethanol.org (“All About Ethanol” to “Ethanol Research”) to read the entire report “Contribution of the Ethanol Industry to the Economy of the United States”

 
© American Coalition for Ethanol, all rights reserved.
The American Coalition for Ethanol publishes Ethanol Today magazine each month to cover the biofuels industryís hot topics, including cellulosic ethanol, E85, corn ethanol, food versus fuel, ethanolís carbon footprint, E10, E15, and mid-range ethanol blends.
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