A couple of weeks ago, a small story appeared in the Stockton Record: Ethanol Supports Approved:

Pacific Ethanol Inc. said Wednesday that its two California production plants, including a currently idle facility in Stockton, have been accepted by the state Energy Commission for a new price support program.

The California Ethanol Producer Incentive Program would provide payments to ethanol producers when market conditions are poor but would require the payments be reimbursed when economics improve….

The incentive program itself is stalled, however, by the ongoing state budget impasse….

Pacific Ethanol’s operating subsidiaries, including its California production plants in Stockton and Madera, emerged from Bankruptcy Court reorganization in late June. Both remain offline, waiting for market conditions to improve.

Below the fold, multiple layers of wrong.

1.  What’s wrong with ethanol?

Pacific Ethanol describes itself as “a leader in producing and marketing low-carbon ethanol”:

Ethanol is a critical part of the country’s energy future. As an alternative fuel or a fuel additive, it has many advantages. Ethanol is made from renewable resources, reducing air pollution and carbon dioxide emissions that contribute to global warming. Ethanol also helps consumers by increasing domestic fuel supplies and refining capacity. The Energy Independence and Security Act of 2007 significantly increases the mandated use of renewable fuels to 9 billion gallons in 2008, with an incremental rise to 36 billion gallons by 2022.

However, corn ethanol has fallen out of favor (except, perhaps, in Iowa) as a reliable replacement for fossil fuels.  “A growing body of scientific opinion holds that clearing fields to grow corn, harvest it, distill it into ethanol and ship it to oil refineries consumes as much energy and causes as much environmental damage as burning oil,” and corn ethanol fared poorly in a California Air Resources Board ranking of environmentally friendly fuels, reports the Los Angeles Times.  A Natural Resources Defense Council report contends that the national corn ethanol subsidy “has not only concentrated the ethanol industry in just a handful of states, but siphoned scarce resources away from more competitive biofuel technologies that create far less pollution and would allow more than double the number of U.S. states to meaningfully participate in ethanol production,” and that corn ethanol creates more global warming pollution than the gasoline it’s supposed to replace.

That’s wrong no. 1: the idea that corn ethanol can ever be an environmentally friendly fossil fuel replacement.  But it gets worse.

2.  What’s wrong with Pacific Ethanol?

Pacific Ethanol was founded by Bill Jones, a Republican Party stalwart and former Secretary of State who’s given $70,000 to Governor Arnold Schwarzenegger’s campaigns, reports the Los Angeles Times.  It’s the largest of four ethanol companies in line for $15 million in subsidies.  Bill Gates invested in Pacific Ethanol, then stopped investing, the price of corn rose while the price of ethanol didn’t, and bankruptcy was filed.  

Three years ago, a tax on car owners was passed, commonly known as AB118, that goes to an Alternative and Renewable Fuel and Vehicle Technology Program.  When the fund was set up, its backers said it would not be used for corn ethanol, but instead other biofuels.  However, last summer Pacific Ethanol’s chief executive visited the office of Schwarzenegger’s environmental adviser to press the case for access to the fund.  Next thing, the Stockton Record is reporting that Pacific Ethanol’s plants have qualified for $15 million in subsidies from that $100 million fund.

That’s wrong no. 2: a politically well connected business siphoning millions of dollars that it wasn’t supposed to get from a well-intentioned funds.

3.   What’s wrong with free money?

Pacific Ethanol has operated plants in Stockton and Madera.  However, both have been idle since filing bankruptcy, which ended in June 2010.  They’ll start up if and when they get the state’s $15 million in price supports.  Again, the state will pay Pacific Ethanol when ethanol prices are low, as they have been, but require the company to reimburse the state when prices climb.  That is, if prices climb; corn ethanol appears to have stagnated as other biofuels experience scientific breakthroughs.

We’re now on wrong no. 3: a $15 million bailout, possibly in perpetuity, for a waning industry.  Just because it’s well-connected to Republicans in power.  Which makes wrong no. 4 slightly less wrong than it should be.

4.  What’s wrong with the California budget?

It’s 58 days overdue, and no one seems to care.  Pacific Ethanol won’t get its free money until a budget is passed.  Neither will a lot of people who need the money more than California’s small, but well connected, ethanol industry.  Legislators looking for waste, fraud, and abuse can start with a skeptical eye on Pacific Ethanol.  

Can sunshine and public pressure undo what lobbyists have done?  If the layers of wrong in this story bother you, contact:

Alternative and Renewable Fuel & Vehicle Technology Program

Fuels & Transportation Division

California Energy Commission

Phone: 916-654-4634

E-mail: AB118 at energy dot state dot ca dot us