Study: Ethanol Harms Corn Counties

– by Ann Purvis, March 18, 2016, Heartland

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Photo: Heartland

Opponents of the federal Renewable Fuel Standard (RFS) mandate, which requires a certain amount of biofuels to be mixed with gasoline annually, often decry the requirement’s impact on prices and car engines, but a new study from researchers at Strata Policy (SP) and the Institute of Political Economy (IPE) at Utah State University suggests RFS also harms the very farmers the ethanol mandate was designed to help.

RFS was created by Congress as part of the Energy Policy Act of 2005. The ethanol mandate was touted by RFS supporters as a way to boost profits for farmers in corn-producing regions of the United States.

According to the study by SP and IPE, the result has been just the opposite. The researchers say American taxpayers have spent $58 billion for direct ethanol subsidies alone since 1980, in addition to the costs added to the economy by the mandate.

Comparing counties in the Corn Belt region, which includes Eastern Kansas, Eastern Nebraska, Illinois, Indiana, Iowa, Southern Michigan, Southern Minnesota, Missouri, and Western Ohio, to the rest of the United States, the study finds residents have suffered an income loss 20 percent greater than the losses suffered throughout the rest of the nation since the renewable fuel mandate was implemented in 2005.

Per-capita income in the Corn Belt has dropped by $1,942.51 over the same period, compared to $1,614.32 in the rest of the United States. Unemployment in the Corn Belt declined by just 1.41 percent, while it fell by 1.89 percent in the rest of the United States.

Refineries Fail

The study reports corn counties often lured ethanol refineries to their communities by offering tax incentives and special agreements, but the researchers found the communities suffered when those refineries struggled. The researchers cite the failure of the VeraSun plant in Dyersville, Iowa as an example. The VeraSun plant received a 20-year tax incentive from the City of Dyersville, only to file for bankruptcy two months after starting its operations because of rising corn prices, which were the result of provisions contained within the renewable fuel mandate.

Ryan Yonk, an assistant research professor at Utah State University and one of the lead authors of the study, says the VeraSun situation is not unique.

“With prices of corn being volatile, gasoline demand fluctuating, and production so reliant on these government handouts, the number of refineries was just too high,” Yonk said.

Yonk says ethanol refineries sprung up rapidly across the Corn Belt in response to government policies, but, as Yonk explained, “Too many opened too fast, all clamoring for the government subsidies instead of responding to market demand.”

Yonk says approximately 10 percent of refineries in the United States shut down in 2012 alone.

“Whether that’s permanent or not is yet to be seen, but it has a major impact on these small Corn Belt towns,” said Yonk.

Mandates ‘Distort Markets’

York says RFS distorted the market in the Corn Belt.

“Instead of seeing substantial investments in all other areas or diversification of crops, investment was diverted to growing corn and refining ethanol,” said Yonk. “This makes the economies of these areas more reliant on this one single industry than it would naturally be, so when things turned south for corn and refining, the shocks were much larger to the local economy than the [U.S.] economy as a whole.”

Yonk says the RFS-created single-sector economic environment in the Corn Belt is likely the reason for the region’s sluggish economic conditions.

“While the rest of the economy is recovering with a wider, more diverse set of industries, the Corn Belt rises and falls to a greater extent around just the fate of ethanol,” Yonk said.

Marita Noon, executive director for Energy Makes America Great, is skeptical lawmakers will actually repeal RFS in the near future.

“The problem is subsidies are always crammed into multi-billion-dollar grab-bag spending packages in 11th-hour bipartisan deals,” Noon said. “I think until the overall culture of Washington[, DC] politics and legislating changes, these types of handouts will continue.”

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