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Is it bad policy for Michigan to give preferential tax treatment to ethanol producers?

You decide. 

Is Michigan making good public policy by providing preferential tax breaks for the production of ethanol and other crop-based fuels?

Just about every politician in our state and everywhere else has been hailing the production of ethanol as the answer to our high prices for fossil fuels like gasoline.  On the surface, it seems like a good deal where you take a portion of our corn production and turn it into fuel to run our cars.

I'm sure that's why Rep. Jeff Mayes of Bay City has introduced House Bill 5100 where ethanol producers in Michigan are given preferential tax breaks.  On the surface, it seems like a no-brainer. Who could be against it.  It passed the Michigan House of Representatives overwhelmingly and is on the Michigan Senate floor for a final vote.

But, a story in Michigan Capitol Confidential published by the Mackinac Center for Public Policy raises serious questions about the corn-based fuel.


The story makes these points that deserve to be discussed:

  • There is strong evidence that preferential tax treatment for ethanol producers is neither an efficient energy strategy nor a sound environmental policy and that it is producing a needless increase in food prices.
  • A U.S.Department of Agriculture study from 2005 concluded that the wholesale cost to produce a gallon of corn-based ethanol was $2.53.  That's several times what it costs to produce a gallon of gasoline.
  • The federal subsidy for each gallon of ethanol is $1.05 to $1.38 or roughly half of its wholesale production cost while the comparable figure for petroleum is 3 cents per gallon.
  • Ethanol contains less energy than per gallon than gasoline.  Ethanol gets 20-30 percent worse mileage than gasoline.
  • Ethanol doesn't burn cleaner than gasoline.  Corn production, the key ingredient in ethanol, depends on huge amounts of fossil fuel.
  • Growing corn for fuel has already driven up fuel prices.

So, is ethanol a bad deal?  Has it been poorly thought out by our political leaders?  Is it something where we need to have more info from our representatives before they vote on bills like HB5100?

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