Government Moonshine in Trouble

August 28, 2009

Yesterday the Wall Street Journal took a lengthy look (subscription required) at the deteriorating financial situation of domestic biofuel producers. According to the Journal:

The business models for most biofuel companies were predicated on a much higher price of crude oil, making biofuels more attractive. A government-guaranteed market was also central to business plans. But once blending mandates were postponed, oil prices plunged and the recession crushed fuel demand, many biodiesel companies started operating in the red. Even ethanol producers, which have enjoyed government subsidies and growing federal requirements to blend it into gasoline, have been operating at a loss over the past year.

Critics of the biofuels boom say government support helped create the mess in the first place. In 2007, biofuels including ethanol received $3.25 billion in subsidies and support – more than nuclear, solar or any other energy source, according to the Energy Information Administration. With new stimulus funding, this figure is expected to jump.

Not surprisingly, these dependents of Uncle Sam are looking for more help at taxpayer and consumer expense:

Producers and investors now are pushing for swift and aggressive government help. Biodiesel makers are lobbying to kick-start the delayed blending mandates immediately and extend biodiesel tax credits, which expire in December.

For common arguments in favor of government intervention in energy markets, and why those arguments fall short, see Cato energy experts Jerry Taylor and Peter Van Doren here. For a discussion of other federal energy boondoggles, see here.



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