Wyoming Liberty Group
Wyoming’s Ethanol Industry May Soon Have to Walk on its Own
by JP Eichmiller
Following World War II, auto manufacturers Mercedes Benz, BMW, Porsche and Volkswagen helped reinvigorate the West German economy by setting new standards in automotive technology and manufacturing. But behind the Iron Curtain in East Germany, an auto company was establishing precedents of a different kind.
The Trabant, a product of state-sponsored VEB Sachsenring Automobilwerke Zwickau, was the best-selling automobile in East Germany during the Cold War. Already outdated when production began in 1957, the Trabant featured body panels made of paper-cotton composites and gas tanks prone to exploding. Powered by a noxious two-stroke, 26 horsepower engine, the car took 21 seconds to go from zero to 62 miles per hour and had a top speed of 70. In 2008, Time Magazine sealed the Trabant’s place in infamy (alongside the Edsel, Corvair and the Yugo) by naming the car one of the 50 worst ever produced.
Contrary to the Trabant’s limitations, the communist East German government’s strategy of central planning ensured the automobile’s place in the market. Between 1957 and the fall of European communism in 1989, Trabant production topped 3 million. And although no upgrades to the engine or body were made during the final 28 years of production, waiting lists for Trabants often stretched years.
But then the Berlin Wall fell, and within a year of facing open competition, the Trabant died a quick death.
The end of the Trabant was a lesson in the failure of government sponsored industry. But in the United States, government subsidies and regulations designed to propel the ethanol industry are mirroring East German mistakes.
Over the past 30 years, U.S. ethanol producers have depended on government handouts and regulations to force their product on the open market. As described in a January article by Wyoming Liberty Group staff attorney Steve Klein, ethanol – a gas additive derived from corn — is propped up by federal requirements that ignore consumer costs, damage to cars and billions in government subsidies.
In 1995, facing a stagnant economy and high unemployment, Wyoming legislators agreed to provide tax credit (derived from highway funds) to the state’s lone ethanol producer, Wyoming Ethanol of Torrington – provided the company obtained at least 25 percent of its corn from Wyoming growers. In the 17 years since the program began, Wyoming Ethanol has received $33.7 million in state funds.
According to a Wyoming state report on the ethanol subsidy dated January 13, 2012: “The historical purpose of Wyoming’s ethanol production credit has been to create a gasohol market by offsetting the increasing cost of producing and blending gasohol and a lack of market demand… Thus, Wyoming state highways and county and municipal roads have foregone $33.7 million to subsidize the ethanol credit program.”
Signals, however, are being sent that the ethanol industry must learn to swim on its own, or risk sinking. In January, federal legislators allowed a 30-year, $20 billion subsidy to ethanol refineries to expire. And in Cheyenne, state legislators are now considering Senate File 8, a bill that would phase out the state subsidy going to Wyoming Ethanol by 2014.
“We want to give [Wyoming Ethanol] time to make the transition,” said Sen. John Schiffer, R-Sheridan/Johnson. “[Wyoming Ethanol] will walk prouder and walk faster.”
Sen. Schiffer also took issue with the lack of return for Wyoming’s investment. “They are required to have 25 percent of the corn come from Wyoming – they have met that just barely. I’m not sure we want to be providing assistance to Nebraska corn growers.”
Representing Wyoming Ethanol and its employees among his constituency is Sen. Curt Meier, R-Goshen/Platte. Predictably, Sen. Meier stands in opposition of the bill. “What’s on the plate is we should keep our word,” said Meier. “[Senate File 8] is going to drive this company out of business. You vote for this and you’ll pull the rug from underneath them.”
According to Sen. Meier, the effects of ethanol production in Wyoming extend beyond the refinery. “You have a lot of people with commitments; combine operators, truck drivers, suppliers of corn. Everyone has a dog in this hunt… The ethanol subsidy far outweighs the economic impact of highways.”
But according to Wyoming Liberty Group economist Sven Larson, ethanol subsidies dampen Wyoming’s economic growth and inhibit the industry from practicing better business methods.
“If a company can’t sustain itself without subsidies it shouldn’t be on the market,” said Larson. “If ethanol was forced to operate on the open market the same way as other companies they may get more creative and innovative… The question we need to ask is whether it’s the government’s job to produce ethanol.”
The Senate voted to pass Senate File 8 and the bill now moves to the House for consideration. Should the Representatives concur, Wyoming’s ethanol industry will be forced to survive on its own, or go the way of the Trabant.