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Why does Ethanol additives cause gas prices to rise?

Posted on 04/27/2006 11:21:18 AM PDT by John Geyer

Edited on 04/27/2006 11:47:26 AM PDT by Admin Moderator. [history]

I would assume that ethanol, being produced by fermenting American grown corn into a useable fuel, would make gas cheaper, not more expensive. Instead of making the price of gas rise, I would believe that it would fall because we are using a renewable, home grown form of fuel. I guess I'm an idiot for not understanding the reasons behind this, but I ask for someone with more experience to explain it for me. I was telling my father how ethanol would make gas cheaper, and now I feel like a complete moron. Help me understand.


TOPICS: Your Opinion/Questions
KEYWORDS: energy; ethanol; gasprices; metalkpretty1day
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To: RightWhale

How much corn do you think is imported into the US?


161 posted on 04/28/2006 2:20:00 PM PDT by Mr. Lucky
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To: newgeezer
What benefit was received for which there would normally be an obligation to pay?

The benefit is an advantage in a competitive market. Ethanol competes with gasoline which has the taxes. They are given an economic advantage that market that other conventional and unconventional processes do not have.

162 posted on 04/28/2006 6:10:29 PM PDT by thackney (life is fragile, handle with prayer)
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To: thackney
No they are not. They are either separated by a pig or simple placed adjacent to each other. I've been on the design team of several truck loading terminal that receive produce by pipeline. Why would anyone introduce water?

Thank you for the clarification. I seem to remember watching a show many years ago about pipelines, and thats what they said. Maybe they were talking about something else.

163 posted on 04/29/2006 4:22:28 AM PDT by fedupjohn (If we try to fight the war on terror with eyes shut + ears packed with wax, innocent people will die)
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To: thackney
The benefit is an advantage in a competitive market.

Apparently, you either don't understand the point, or you're just being purposefully obstinate.

In any case, ethanol receives no subsidy. Rather, it receives preferential tax treatment, which could be said to have an effect similar to that of a subsidy.

164 posted on 04/29/2006 6:41:13 PM PDT by newgeezer (Just my opinion, of course. Your mileage may vary.)
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To: newgeezer
it receives preferential tax treatment

That is financial assistance. That is a subsidy. And it appears to me, you are the one being purposefully obstinate.

165 posted on 04/30/2006 4:27:38 PM PDT by thackney (life is fragile, handle with prayer)
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To: thackney

Would you agree that the oil depletion allowance was also in the nature of financial assistance then?


166 posted on 04/30/2006 4:50:25 PM PDT by Mr. Lucky
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To: newgeezer
On a hunting trip to South Dakota last year we carefully tracked the mileage on a 2000 Chevy Silverado that had 100,000 miles of mileage data in the book. It consistently, over that time, got exactly 16.5 mpg When we put the 85 in the mileage dropped to 14.2 over 800 miles (two full tanks+ some). Interestingly enough the 87 octane regular in Wyoming kicked it up to 17.1. One vehicle over a 3600 mile test with the same load and tracking the same route both ways.

FWIW I suspect that not just the btu content is at play but the fact that you also "carry" fuel - the weight being a factor - more btu's/lb less tare.

167 posted on 04/30/2006 5:07:16 PM PDT by mad_as_he$$ (Never corner anything meaner than you. NSDQ)
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To: Mr. Lucky
Would you agree that the oil depletion allowance was also in the nature of financial assistance then?

Yes it was. It encouraged oil companies to play games with the accounting by vertically integrating. If a company owned the wells, processed the crude oil, and sold gasoline and other products to final consumers, it could control the price it charged its own units for the oil.

This was a bad law and it was good to have it end in 1974. Afterwards many oil companies got rid of their downstream retailers.

168 posted on 04/30/2006 8:59:23 PM PDT by thackney (life is fragile, handle with prayer)
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To: thackney
it appears to me, you are the one being purposefully obstinate.

I'm being accurate. For some reason, you insist on playing loose with the language.

Answer this: If a schoolyard bully takes the lunch money from four kids including yours every day for a month, is it financial assistance to your kid if he decides to stop taking it from yours? Is the bully subsidizing your kid's lunch by letting him keep his lunch money?

169 posted on 05/01/2006 6:41:09 AM PDT by newgeezer (Just my opinion, of course. Your mileage may vary.)
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To: thackney
Percentage depletion is still available for oil & gas royalty owners and independent producers. The tax code is chocked full of goodies such as the Petroleum Research and Development Program, the Foreign Tax Credit, the Enhanced Oil Recovery Credit, immediate deduction of Intangible Oil Drilling & Development Costs. The State department, through the Overseas "Private" Insurance Corporation even assumes all risk of loss due to foreign political upheaval.

Even without regard to spending for military protection, continuing tax payer subsidies to the oil industry are behemoth. Of course, Exxon can't be expected to pick up the tab for its president's $400,000,000 retirement package all by itself.

170 posted on 05/01/2006 8:24:17 AM PDT by Mr. Lucky
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To: newgeezer
Answer this: If a schoolyard bully takes the lunch money from four kids including yours every day for a month, is it financial assistance to your kid if he decides to stop taking it from yours? Is the bully subsidizing your kid's lunch by letting him keep his lunch money?

That is not a fair comparision. But if we change it to a private school that everyone pays to attend, but one kid gets in free, that is financial assistance.

171 posted on 05/01/2006 8:55:02 AM PDT by thackney (life is fragile, handle with prayer)
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To: Mr. Lucky
Percentage depletion is still available for oil & gas royalty owners and independent producers.

I thought, and may be wrong, that percentage depletion applied to the owners of the land, not an oil producer leasing the land.

Foreign Tax Credit

Foreign Tax Credit is not an oil company subsidy. Any company or individual that makes money in foreign country and pays taxes on income, deducts that tax from tax they pay here. Just like State income tax is deducted from Federal.

deduction of Intangible Oil Drilling & Development Costs

All business deduct costs of doing business. Taxes are paid on profit, not gross. Unless you are in oil & gas business, then you also pay royalties on the gross.

Petroleum Research and Development Program,...Enhanced Oil Recovery Credit

These are programs that increase the production of US resources. The net to the government is more royalties and taxes, not less.

subsidies to the oil industry are behemoth

I believe (and cannot prove it) that dollar paid for dollar earned, the oil & gas industry pays more to federal government than any other industry. The amount of money in royalties, property taxes, corporate taxes, income taxes by this industry is huge. I am not complaining about that mind you.

spending for military protection

Just how many aircraft carriers will we do away with if we produce all our own fuel? I doubt any. But I complete support us doing all we can to avoid foreign imports. We should drill ANWR, Bristol Bay, OCS and all our coasts. We should develop Nuclear power more fully. Our coal, oil sands and oil shale should be fully developed.

172 posted on 05/01/2006 9:15:37 AM PDT by thackney (life is fragile, handle with prayer)
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To: thackney
That is not a fair comparision.

Please explain. How does the bully analogy fall short?

173 posted on 05/01/2006 10:33:52 AM PDT by newgeezer (If you can call a tax exemption a subsidy, you can call a HUMMER a Suburban. Words mean things.)
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To: thackney; newgeezer
The depletion allowance is taken by the owner of the mineral rights or royalty. It's a direct tax preference for oil or gas production.

The Foreign Tax Credit allows integrated oil companies to shift earnings back and forth between their domestic and off shore operations. Your comparison confuses a state tax deduction with a foreign tax credit.

In every other business, development costs must be capitalized, not deducted. Again, a direct tax subsidy.

Tax credits which are received by one competitor , but not by another were claimed by you to be a subsidy. Why is this not true when the recipient is an oil company?

174 posted on 05/01/2006 11:01:54 AM PDT by Mr. Lucky
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To: newgeezer

For starters, the tax applies to all other vehicle fuel, not paid by just a couple drivers on the road.


175 posted on 05/01/2006 11:09:04 AM PDT by thackney (life is fragile, handle with prayer)
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To: Mr. Lucky
Why is this not true when the recipient is an oil company?

I've made no such claim. ANY tax break is a subsidy.

176 posted on 05/01/2006 11:10:15 AM PDT by thackney (life is fragile, handle with prayer)
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To: nhoward14

Just Remember:

Rube Goldberg was an Engineer.

I love Rube Goldberg devices.


177 posted on 05/01/2006 11:12:16 AM PDT by roaddog727 (eludium PU36 explosive space modulator)
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To: thackney
ANY tax break is a subsidy

Bless you.

178 posted on 05/01/2006 11:16:55 AM PDT by Mr. Lucky
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To: John Geyer; All

What an excellent and informative thread you started, John Geyer. Thank you, and thank you to all FReepers who have contributed their knowledge and expertise on this subject. A day is never wasted when one learns something new. :)


179 posted on 05/01/2006 11:21:01 AM PDT by Chena (I'm not young enough to know everything.)
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To: thackney
For starters, the tax applies to all other vehicle fuel, not paid by just a couple drivers on the road.

Fine. If it'll make you happy, let's say the bully steals lunch money from EVERY kid in the fourth grade except his friends. He doesn't give them any money; he just doesn't take it from them.

So, are you really going to say the bully is subsidizing his friends' lunches because he takes everyone else's lunch money?

180 posted on 05/01/2006 11:51:10 AM PDT by newgeezer (Just my opinion, of course. Your mileage may vary.)
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