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By Doing Nothing, Congress Does Some Good

Written By Christian DeHaemer

Posted December 31, 2011

Sometimes I wonder whether the world is being run by smart people who are putting us on… or by imbeciles who really mean it.”
— Mark Twain

A hoary old trader once told me to never buy something based on a government subsidy because sometimes those subsidies end.

In the case of Pacific Ethanol Inc. (PEIX), he would have been correct.

pacific dec 29

Something funny happened on the way to the annual feeding frenzy at the government trough…

Congress has quietly ended subsidies on ethanol fuel and dropped import tariffs on Brazilian ethanol. The subsidy had been paying companies 45 cents per gallon to make E10. The tariff added 54 cents a gallon to the Brazilian imports.

This program has been costing taxpayers $6 billion a year — and Congress let it expire by not acting to renew it.

But don’t worry about the survival of the ethanol industry…

It will still benefit from Congressional mandates that call for 15 billion gallons of renewable fuels by 2015 and 36 billion gallons by 2022.

(Congress should cut that mandate as well, but we’ll take what we can get.)

The argument for ethanol never made sense. It takes corn away from hungry people and puts it in gas tanks. Not only does it cost more energy to grow and convert corn into fuel than it does to simply burn hydrocarbons, but it also raises the price of food.

In Brazil, they use sugarcane, which does a much better job. In fact, it works eight times as well as corn.

It might be a good time to take a look at Brazilian ethanol producers like Cosan (NYSE: CZZ).

Best of the Week

Below you will find the best articles from Wealth Daily and Energy and Capital this week, just in case you were too busy drinking eggnog to read them.

On behalf of Wealth Daily, I’d like to wish you and yours a happy and prosperous New Year.

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Christian DeHaemer

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Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.

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