Don't Invest in Ethanol!

If the ethanol industry were a comedian, it would be funnier than George Carlin.

An industry built almost entirely in the halls of Congress, where mandates trump free markets, the gatekeepers of biofuel press releases have come out swinging after the EPA announced it plans to scale back the U.S. biofuel mandate.

So why the comparison to comedy?

Because I find it beyond hilarious that an industry that lives and dies by the amount of subsidies it receives is calling out the Obama administration for “bowing to the oil industry’s efforts to limit how much biofuel is allowed in the marketplace.”

Isn’t that what the biofuel industry’s been doing since President Bush approved the renewable fuels mandate in 2007?

There would hardly be a single drop of ethanol in our gas tanks if it weren’t for the government mandating how much biofuel is to be in the marketplace!

Of course, the ethanol industry shouldn’t get too upset. After all, the EPA is still allowing the ethanol lobby to grease its wheels.

While I Shed a Tear…

According to the EPA, the new proposal would ultimately boost renewable fuel production and provide for ambitious yet responsible growth over multiple years, supporting future expansion of the industry.

Purdue Economist Wally Tyner commented on the decision, saying:

Biodiesel appears to be a big winner with its mandate steadily growing over time and far exceeding the congressionally mandated level. The 2007 law called for at least 1 billion gallons of biodiesel annually. The EPA proposed 1.7 billion gallons this year and 1.8 billion gallons in 2016.

Still, the Renewable Fuels Association argues that with this scaled-down version of the mandate, the EPA will “discourage investments into equipment to boost ethanol sales, such as blender pumps that dispense fuel with a higher mix of ethanol than the standard 10 percent.”

Oh, I get it.

So basically, without the government’s strict mandates designed to enrich the corn lobby, the ethanol industry will struggle to force more of its product into our gas tanks. Pardon me while I shed a single tear for those poor biofuel welfare recipients.

Welfare Queen

The truth is, there would be no viable biofuel industry today if the government weren’t paying it to create a product that’s not only unnecessary but also serves as just one more environmental burden we all must bear while we continue to buy the illusion that only an outdated internal combustion engine can move us efficiently and quickly from place to place.

And by the way, ethanol producers should actually thank Big Oil for ensuring that gasoline and diesel are still a necessity. You think ethanol would stand a chance if we were all driving around in electric cars, where no such fuel would even be necessary?

Here’s the bottom line…

There isn’t a single player in the ethanol game that could make a profit without government intervention.

Of course, it would be naïve to assume that any industry in the energy or transportation space exists without a steady flow of taxpayer-funded corporate welfare.

Whether it’s oil, nuclear, solar, or wind, they’re all getting some sort of subsidy — direct, indirect, or both. It’s simply an inconvenient reality that can’t be ignored.

But one thing is certain: When it comes to “alternative energy,” the biofuel industry takes that cake as one of the biggest corporate welfare queens on the block.

Values Are Relative

Personally, I don’t think the EPA’s decision went far enough. In the absence of a complete repeal of the biofuels mandate, this will continue to be a drain on taxpayers.

Sadly, I don’t see such a thing happening. There’s still too much influence in Washington from powerful interests in the Corn Belt.

And as far as investing in ethanol companies goes, I wouldn’t touch these if you paid me. The failure or success of these companies is too closely related to how much love the industry gets from Washington. As well, I refuse to invest in companies that aren’t aligned with my own values.

Being such a heavily subsidized industry that claims to be environmentally friendly yet destroys our water and soil by irresponsibly growing industrial corn to shove into the gas tanks of internal combustion vehicles, there’s no way I could ever feel comfortable contributing to the bottom line of any of these companies.

Of course, values are relative, and I’m certain plenty of investors don’t share the hang-ups I have when it comes to this kind of thing. So if you want to invest in the ethanol space, there are plenty of opportunities.

Just be warned: If the biofuels industry ever gets cut off from Uncle Sam, the party’s over, and most biofuel companies will be reduced to the rubble from which they grew — before they were carefully nurtured by a handful of bureaucrats with a steady stream of golden showers and filthy lucre.

To a new way of life and a new generation of wealth…

Jeff Siegel

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Jeff is the founder and managing editor of Green Chip Stocks. For more on Jeff, go to his editor’s page.