If gov't subsidization, mandated use, and R&D funding are guaranteed to pay off when the targeted energy source "scales up", why isn't corn ethanol a success?
Why is it a wasteful boondoggle instead?
It certainly has benefited from (and is wholly dependent on) massive gov't subsidization and gov't mandated use.
Furthermore, if the involvement of high tech venture capitalists in a new alternative energy technology is assured of generating success, why isn't corn ethanol a success?
As shown below, corn ethanol was once the major target of VC dollars. VC's moved on once it became obvious corn ethanol was never going to be anything but a wasteful boondoggle. Unfortunately, while the opportunistic VC's have moved on to new alternative energy schemes, taxpayers are still stuck with the permanent subsidization of the corn ethanol industry the VC's helped spawn.
"..the venture capital exuberance exhibited during the corn-based ethanol industry build-out of 2005-’06 ... Day asserts that venture capitalists who are paring back their original investments in corn-based ethanol aren’t completely divesting but rather “betting on new bets,”
ethanolproducer.com
"Venture Capital Moves Beyond Corn Ethanol
SustainableBusiness.com News
Corn ethanol has not received a single venture capital dollar this year, compared to $495 million it received just two yeas ago, according to a Reuters report.
Corn ethanol has fallen out of favor due to concerns over its contribution to environmental degradation and worldwide food shortages.
.....
"Corn has served a useful purpose," said Vinod Khosla, one of Silicon Valley's best-known venture capitalists, at a recent conference. "We wouldn't have been investing in alternatives (to corn)... because corn created the market."
sustainablebusiness.com
reuters.com
"Many venture capital firms have been quickly shifting their focus from one technology to another. Ethanol and other biofuels, for example, were the rage in 2006 as oil prices shot up and federal and state laws favored them. But they're no longer attracting big venture capital dollars. The biofuels didn't live up to their promise as a less expensive alternative to gas because of the high cost to make and transport them."
pbs.org
"Venture capital vital to North Dakota - VeraSun Energy, No. 2 U.S. ethanol producer, a Brookings, S.D.-based company has very successful IPO"
June 15, 2006
matr.net
Great for the Verasun VC's who got their money out via an IPO but taxpayers are stuck with permanent subsidies and use mandates for Verasun.
"The backers of an ethyl alcohol plant on the Buffalo River are putting a new twist on an old product. They plan to distill corn for use as a motor fuel, not as a social lubricant. But does it make sense to convert food into fuel -- especially when corn prices are rising? It was a question that the plant's backers addressed on Wednesday at a meeting for potential investors in Buffalo. "We can truly become a leader in alternative energy in Buffalo," said Rick Smith III, chairman of River- Wright Energy. The developer of the proposed plant said that the idea would generate $288 million a year in sales, producing a homegrown fuel -- and a healthy profit -- while recycling the city's unused grain elevators."
accessmylibrary.com
"The Corn Ethanol Juggernaut
Oil isn't America's only fuel addiction. Inefficient and environmentally damaging, the corn-ethanol boondoggle will nonetheless be hard to stop.
by robert bryce
The huge corn ethanol mandates imposed by Congress a few years ago may be the single most misguided agricultural program in modern American history.
..... once a juggernaut like corn ethanol gets rolling with massive federal support and mandated production levels, bringing it to a halt is enormously difficult — even when study after study shows that relying on corn ethanol as a cornerstone of an alleged renewable energy policy is folly.
....
... a bill — introduced in May by Texas’ Kay Bailey Hutchison and 10 other Senate Republicans — to freeze the ethanol mandates. Hutchison argued that the ethanol mandates needed to be limited because they were driving up the price of corn and were “clearly causing unintended consequences on food prices for American consumers.” Her bill would limit the volume of corn ethanol to be blended into gasoline to no more than 9 billion gallons. But current federal rules mandate far greater production: U.S. oil refiners must be using at least 15 billion gallons of ethanol per year in their gasoline by 2015 and 21 billion gallons by 2022.
....
Hutchison’s bill, S. 3031, is stuck in the Senate Environment and Public Works Committee. A hearing has not even been scheduled.
In early August, the Environmental Protection Agency denied a request by Texas Gov. Rick Perry to allow his state to opt out of the federal ethanol mandates. Lower corn prices are a critical issue for livestock producers in Texas who have been hit hard by soaring corn prices. In denying the request, E.P.A. Administrator Stephen L. Johnson said that the ethanol requirements are “strengthening our nation’s energy security ...."
e360.yale.edu
Shouldn't we learn an expensive lesson from the corn ethanol boondoggle?
When promoters of some new alternative energy scheme promise success if the gov't will just step up and enact subsidization and mandated use schemes to allow the "scale development" of an industry, we need to be skeptical. We've already seen taxpayers sold a bill of goods in order to enrich early stage investors so they can move on to new schemes. By coincidence (?) those new schemes always also require massive gov't subsidization and mandated use to "scale up development". Its for a good cause, of course. Its necessary to cure that "oil addction", to become independent of evil foreign dictators. Why its downright unpatriotic not to support ever higher subsidies and mandated use targets.
"American farmers, by making the commitment to grow more corn for ethanol, are at the top of the spear on the war against terrorism." --former CIA director James Woolsey
"Venture capitalist Khosla joins in effort to save the planet
.....
Near Macon, Ga., for example, Khosla-backed Range Fuels last month started construction on a factory meant to produce the gas alternative ethanol."
BTW, Khosla's new investment will make ethanol from cellulosic ethanol aka wood chips. Okay, that corn ethanol thing didn't work out but wood chips - I mean, cellulosic ethanol, (sounds better) - will work. And if it doesn't, algae will, or this or that solar technology will .... you just have to invest in the future and help me save the world.
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I suggest the corn ethanol boondoggle should teach us there need to be strict caps and limits placed on gov't benefits. Ideally, the provision of gov't benefits should be tied directly to the provision of capital by outside investors and rise and fall as outside capital enters or leaves a particular alternative energy industry. When venture capital moves on, taxpayer benefits should end.
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