LA needs to excise wasteful, distortive ethanol laws

While Louisiana, following the federal government, allowed its modest contribution to a boondoggle to expire, also like the federal government for real benefits to accrue it must stop indirect as well as direct support of wasteful corporate welfare.

At the end of 2011, Congress let ethanol subsidies expire. An eclectic coalition of conservatives, who correctly noted the economic inefficiency of subsidizing something with insufficient market demand when cheaper alternatives existed that had no worse externalities, and liberals, who found fault with another market distortion in how ethanol’s demand for foodstuffs jacked up those prices and skewed land use in what they thought were inferior environmentalist ways, built sufficient political power to discourage renewal.

The industry itself went along, but perhaps to deflect attention from a more insidious kind of market intervention: federal requirements of usage of ethanol that continue to increase that will have the same distorting effects that will cost consumers and taxpayers extra money. Louisiana tracked this national trend in a similar fashion, for both good and bad.

After its 2008 passage with a sunset date of this Jan. 1, the Legislature made no effort to renew the Advanced Biofuel Industry Development Initiative. This allowed the state’s Department of Agriculture to test and to award money for pilot projects to do research in the use of biofuels. Fortunately, economic reality intervened and it appears no money ever got appropriated to waste funds on this, which is better done by the private sector or by higher education researchers.

Unfortunately, other laws passed during Gov. Bobby Jindal’s first term continue threaten to siphon money for this kind of unproductive purpose. In 2010 came the Alternative Fuel Vehicle Revolving Loan Fund, which provides financial sops to local governments to have fleets of “clean fuel” vehicles, spurred by natural gas extractions from the Haynesville Shale, although no money has been appropriated yet to support this. But this past year, the state enacted provision of an indirect subsidy by requiring the Division of Administration to purchase these vehicles, although this may be waived.

And the biggest time bomb awaits, courtesy of the former Gov. Kathleen Blanco era. She pushed for R.S. 3:4674, which would mandate production of ethanol comprising at least two percent of fuel sales in the state if a substantial minimum (50 million gallons) got produced annually. In fact, when the law was passed in 2006, Blanco was stumping for subsidies to push the state there. Luckily, production has yet to pull the trigger but the threat remains of this wasteful mandate being thrust on consumers until it gets repealed.

(Related fallout from this bad incentive continues. Former agriculture commissioner Bob Odom suckered the state into one of its worst diversions of state dollars to narrow, trivial purposes by putting the state on the hook for two sugar mills, one of which would have had the capacity to hit the ethanol production trigger easily. Now the state struggles to ensure it won’t be on the hook for at least $75 million.)

As with the federal government, the structure remains in place that puts a potential floor on ethanol use. In the final analysis, payment to boost supply or regulating to induce demand equally distort the market in unproductive ways, passing on costs to the citizenry without compensating provable benefits. Part of the second-term Jindal agenda should reverse his acquiescence to these, as they lay in wait to cost people money unnecessarily as any over-reach in government regulation and over-activity does.