?? The Ethanol s?c?a?m? subsidy
Welcome to the WC, by Wyatt Cavalier
This week, we're delving into one topic: It costs taxpayers billions, wrecks the environment, and props up unprofitable corporations.
The Ethanol Scam
Next week, I'll dive into some potentially better uses for the 30+ million acres of land (more than 1% of America) currently devoted to ethanol-producing corn.
Let's go. ??
?? What's Ethanol?
Ethanol, particularly corn-based ethanol, is a biofuel blended with gasoline and marketed as a solution for energy independence and environmental sustainability.
It's heralded as a renewable alternative to fossil fuels, capable of reducing greenhouse gas emissions while supporting American farmers.
Today, 40% of U.S. corn production—roughly 14 million hectares (34.6 million acres)—is devoted to ethanol, generating around 15 billion gallons annually. This production drives approximately $46 billion in revenue for the ethanol industry.
The biofuel is predominantly used as a gasoline additive. 98% of gasoline in the U.S. contains some ethanol, mainly in the E10 blend (10% ethanol, 90% gasoline).
Sounds great, right? Let's dig in.
?? Ethanol’s Lifeline: Massive Subsidies
Corn ethanol would die without massive government subsidies.
Every year, ethanol producers get somewhere between $6 billion and $9 billion worth of tax credits, crop insurance, and Renewable Fuel Standard (RFS) mandates.
But ethanol production remains unprofitable even with all those handouts.
Ethanol costs about $2 per gallon to produce—far more than conventional gasoline. Without government assistance, ethanol wouldn’t even make it to our fuel pumps, let alone stand a chance in the open market. Ethanol subsidies often cover up to 42% to 55% of its market price, meaning that without these subsidies, ethanol would essentially cease to exist competitively.
Consider the Inflation Reduction Act (IRA), passed in 2022, which was originally touted as a climate-friendly law. Tucked into this legislation were additional subsidies for the ethanol industry, helping prop up profit margins during inflation. Despite the promise to combat climate change, this Act delivers more taxpayer money into the hands of agribusiness giants like Archer Daniels Midland (ADM), which thrives thanks to government incentives.
American taxpayers are footing the bill.
These subsidies are corporate welfare on a grand scale, taking money from taxpayers' pockets and funneling it straight into the coffers of ethanol-producing companies and large corn farmers.This generous government support props up a failing industry, shielding it from the economic backlash it would face on the open market.
And it's not these guys getting the subsidies.
It's this guy.
Approximately 60-70% of government agricultural subsidies across the U.S. go to the largest 10% of farms.
Which is fine if you own stock in those companies, but don't believe the story that farm subsidies are keeping alive a mythical family farm somewhere in Nebraska.
? Ethanol Fails as an Energy Solution
One of the primary justifications for ethanol subsidies is that it keeps America’s engines running while reducing dependence on foreign oil. The reality, however, is not so rosy.
Stagnant Growth
Ethanol’s potential as a transformative energy source is not feasible. U.S. ethanol consumption has remained stagnant for almost a decade for several reasons:
Even in markets where ethanol-friendly policies, like Low-Carbon Fuel Standards (LCFS) in states such as California, provide a source of revenue, long-term growth appears limited. These policies increasingly incentivize other technologies—namely, electric vehicles (EVs) and next-generation biofuels that directly compete with ethanol.
Ethanol’s Low Energy Efficiency
Ethanol’s energy return on investment (EROI) is meager. Scientists estimate the EROI for corn ethanol to be between 1.3 to 1.5, meaning the fuel barely returns more energy than required.
Compare this to conventional oil, which has an EROI of about 8, meaning there’s a substantial net gain in usable energy. Even some forms of solar energy have an EROI of around 7 to 10, a far better return than ethanol.
So yes—ethanol might lower our dependence on foreign oil by a small margin, but at what cost? It’s a loss-making endeavor when viewed as an energy solution.
?? Ethanol Wrecks the Planet
Given ethanol’s pristine press among "green energy" proponents, it’s easy to believe that it burns cleaner and is a win for the environment—but this, too, is a myth.
Strained Water Resources
Producing ethanol, particularly corn-based ethanol, is highly water-intensive. It’s estimated that it takes three gallons of water to produce one gallon of ethanol once you account for corn irrigation and refining. In regions already facing water shortages, the ethanol industry imposes immense pressure on an increasingly fragile resource.
Polluting Air and Water
While ethanol is sold as “cleaner-burning” than gasoline, its actual environmental impacts are far more complex and disappointing. Blended ethanol fuels, particularly E10, have been shown to increase emissions of volatile organic compounds (VOCs), which contribute to ground-level ozone and smog. Additionally, fueling vehicles with E85 (85% ethanol, 15% gasoline) has been shown to cause even worse air pollution.
Then there’s the land. Corn ethanol production drives monoculture farming, which leads to heavy use of fertilizers and pesticides—chemicals that further contaminate local water supplies and contribute to harmful algal blooms and dead zones in coastal ecosystems.
Do you live next to a cornfield? You may want to move .
When pushed to complete lifecycle analysis, ethanol doesn’t seem cleaner—it just shifts the pollution elsewhere, from tailpipes to croplands and aquifers.
??? Ethanol Won’t Save Us from Terrorism
Another seductive myth is the idea that ethanol will help wean America off oil imports from the Middle East, thus starving terrorism of funding.
Politically, this sounds great. Economically and practically? Not so much.
As much as we’d like to believe that ethanol will keep dollars from petro-states like Saudi Arabia or Iran, reality is more complicated . Even under the most favorable assumptions, ethanol would only displace a small portion of U.S. oil consumption. Reducing U.S. oil imports by a few percent wouldn’t thwart terrorism—the cost of terror is relatively low, with minimal dependence on nation-states’ oil revenues.
Further, oil is a global commodity. As long as we remain part of the global oil market (and we will have to until EVs become ubiquitous), the cost spikes and volatility from disruptions worldwide will reach us—ethanol or not.
?? So Why is Ethanol Still a Thing?
Unfortunately, one of the core reasons ethanol continues to hold sway has little to do with the fuel’s performance and everything to do with politics.
Look at the map below and tell me corn production isn't political.
The ethanol industry holds an outsized influence in states like Iowa, where political futures are made or broken. The Iowa caucuses, for instance, put tremendous pressure on presidential candidates to support ethanol subsidies or risk losing key voters. This has elevated corn ethanol into a political powerhouse, where removing subsidies is deemed impossible by most parties anxious to hold onto votes.
Beyond that, agribusiness lobbyists ensure that groups like Archer Daniels Midland (ADM) and other corn ethanol corporations continue to benefit from government largesse.
The agribusiness lobby spent over $178,000,000 bribing lobbying Congress in 2023 and over half a billion over five years.
Billions of dollars enter this industry every year—not based on its environmental promise, but because it pays to play in politics.
?? What's Next?
I don't have a solution for getting rid of the agricultural lobby in the US, but I don't have to. I'm an Ivory Tower writer.
So next week, I will suggest better uses for the 30 million + acres of American land (just a bit bigger than New York) dedicated to the bio boondoggle.
Until then...
Would you like to know more?
Fueling Freedom: Exposing the Mad War on Energy : Stephen Moore and Kathleen Hartnett White. While somewhat controversial, this book argues the economic consequences of propping up inefficient energy sources through subsidies. The discussion touches on how policies like those supporting ethanol create distortions in the energy market.
That's all for this week; I hope you enjoyed it.
Cheers,
Wyatt
Disclosures