American’s Crazed Corn Habit – Mises Institute

Tuesday, December 22, 2009 by Justin Rohrlich

According to a recent Congressional Budget Office report, the increased use of ethanol is responsible for a rise in food prices of approximately 10 to 15 percent.

Why?

We’re turning corn into fuel — a highly inefficient one, at that — instead of food.

The Mackinac Center for Public Policy points out that "mixing food and fuel markets for political reasons has done American consumers no discernable good, while producing measurable harm."

However, perhaps summing up the issue most succinctly is Mark J. Perry, professor of economics and finance at the University of Michigan-Flint:

Anytime you have Paul Krugman agreeing on ethanol with such a diverse group as the Wall Street Journal, Reason Magazine, the Cato Institute, Investor’s Business Daily, Rolling Stone Magazine, the Christian Science Monitor, The New York Times, John Stossel, The Ecological Society of America, the American Enterprise and Brookings Institutions, the Heritage Foundation, George Will and Time magazine, you know that ethanol has to be one of the most misguided public policies in US history.

But Brazil seems to have made it work. Using just 1 percent of its arable land, Brazil produced 6.57 billion gallons of sugar ethanol last year, roughly half the annual oil production of Iraq. Ethanol accounts for about 50 percent of Brazil’s automotive fuel. General Electric and Brazilian aircraft maker Embraer are working to develop ethanol suitable for powering commercial aircraft, with a test flight possible by early 2012. Most importantly, Brazil relies on imported oil for only 10 percent of its energy needs today — due in large part to its ethanol industry.

So, what’s Brazil doing right?

The answer is simple. Unlike the United States, Brazil makes its ethanol from sugar, which yields over eight units of energy for each unit invested, whereas corn-based ethanol yields a paltry one and a half units of energy for each unit invested.

Biofuels News

May 21, 2007
Hawaii: a return to the land, for fuel
By Matt Villano
LAHAINA, Hawaii – Here on the West Side of Maui, where lush mountainsides and the warm waters of the Alalakeiki Channel juxtapose increasingly crowded roadways and a spate of new luxury hotels, the push for renewable energy has found an unlikely advocate: the chief executive of one of the most aggressive developers on the island.
The real estate maven, David Cole, has used his position as head of Maui Land and Pineapple, a land holding and operating company, to promote sustainable development. The effort harks back to Hawaii?s past, with plans to return some farmland to production ? this time for energy rather than food ? after so many years in which the state turned its back on its agricultural history in a headlong rush into tourism and real estate.

Perhaps the most notable effort is Hawaii BioEnergy, an international consortium that includes two other local landowners, Tarpon Investimentos, an investment company in Bermuda, and Brasil Bioenergia, an energy company in S?o Paulo.

The consortium, which also involves the co-founder of America Online, Stephen M. Case, and the venture capitalist Vinod Khosla, took form last July with the goal to make Hawaii, which has long had to pay high prices for imported fuel, largely energy-independent.

?As islanders, we?ve had to provide for our own survival for hundreds and hundreds of years,? said Mr. Cole, 55, who was raised on Oahu but spent most of his adult life on the mainland before coming to Maui in 2003.

?Now that the technology exists to turn some of our natural resources into energy, there?s no reason we should be getting energy from anywhere else,? he said.

While companies on the mainland are subsidized to produce ethanol from corn, Hawaiian companies and Hawaii BioEnergy are turning to other materials, particularly sugar cane, which are potentially far more efficient sources of ethanol per input of energy and raw material than corn.

Statistics from the Department of Energy, the Renewable Fuels Association in Washington and evidence from Brazil?s experience indicate that ethanol from sugar cane is considerably cheaper to produce than ethanol from corn, a savings that potentially could trickle down to consumers in the form of lower energy bills.

Even without these numbers, the business case for investing in alternative energy in Hawaii is compelling. The Hawaiian archipelago relies on imported oil for nearly 90 percent of its energy needs, making it one of the most expensive places in the nation to buy gasoline and pay for electricity and heat.

In May 2006, Hawaii passed a bill requiring that 20 percent of all highway fuel demand by 2020 must be provided by renewable fuels like ethanol, biodiesel or hydrogen. Another bill under consideration in the State Legislature would allow biofuel processing centers to be permitted in agriculture districts and would develop a baseline percentage of energy feedstock to be grown in the state.

Charmaine Tavares, mayor of Maui County, which includes the islands of Maui, Lanai, Molokai and Kahoolawe, said the goals were ?admirable,? but noted that more immediate changes were necessary as well.

?Every time we pay our energy bills, we?re all aware of the need for renewable energy,? Ms. Tavares said. ?The year 2020 just seems pretty far away.?

Mr. Cole, whose company is one of the largest landowners on Maui, agreed. Last summer, after an eye-opening trip to Brazil, he took matters into his own hands.

With the help of Mr. Case, whom he met during a stint at America Online in the 1990s, Mr. Cole signed up Hawaiian landowners like Kamehameha Schools, an independent school system and the largest landowner in the state, and the Grove Farm Company, a 22,000-acre sugar cane plantation in eastern Kauai that is owned by Mr. Case.

The pair also enlisted help from companies overseas, and recruited Mr. Khosla, a co-founder of Sun Microsystems in 1982 who has become one of the biggest backers of renewable energy in the world. Hawaii BioEnergy was born.

Since then, these founding partners and Maui Land and Pineapple have invested nearly $1 million in cash and put a number of full-time employees to work running the business. They expect other investors to help raise an additional $50 million to $80 million to get the operation off the ground.

?When you consider the tropical weather and all the sun Hawaii gets, it is a perfect place to prove that fuels made from biomass can be cost-competitive,? Mr. Khosla said of the project.

Still, the real heart of this consortium is land. The three landowners own about 10 percent of the arable soil in the state: 450,000 acres in all.

Though most of this soil is fallow today, Mr. Case wrote in a recent e-mail exchange that the partners plan to combine contiguous parcels, coordinate planting, harvesting and processing operations, and maximize economies of scale.

?These efforts are not without risk, but anything important has risks,? he wrote of the Hawaii BioEnergy plan. ?Hawaii?s first act was agriculture, and the second act was tourism. Now it is time for the third act, Hawaii 3.0.?

By some accounts, this new era is already under way. From a conference room at the understated Maui Land and Pineapple headquarters in Kahalui, Mr. Cole recently reviewed a new Hawaii BioEnergy feasibility study for producing ethanol from sugar cane on Maui, noting that the consortium could begin plant construction as soon as 2010.

Ultimately, he said, the plant would produce 27 million to 28 million gallons of ethanol a year, and would use the fuel to defray its own energy costs and to sell elsewhere in the state. He added that the group has explored other potential sources for ethanol, including soybeans, switch grass and a type of elephant grass called miscanthus.

Mr. Cole noted that the consortium also looked into producing ethanol from potential ?co-products? of the fuel-making process, including electricity from bagasse (the residue produced after crushing sugar cane), biodiesel from algae nourished by carbon dioxide off-take in the distillation process and animal feeds from the residual algae stream. All together, burning this additional ethanol could add another 25 to 30 megawatts of sustainable power capacity, Mr. Cole said.

?Part of our conception is that we get the most out of the project by making all waste streams into food streams for something else,? Mr. Cole explained. ?Before we invest in a particular technology, we want to be sure we?re investing in the technology that will give us the biggest and broadest return.?

To be sure, Hawaii BioEnergy is not the only partnership interested in renewable energy; elsewhere, the state?s two remaining sugar cane companies are exploring renewable energy efforts of their own.

On Kauai, for example, the cane producer Gay & Robinson recently received a state permit to build a $36 million ethanol plant in the town of Pakala as part of a joint venture with a local energy company. The other concern, the Maui-based Hawaiian Commercial and Sugar, is also investigating renewable fuels.

Because these companies currently combine to harvest 270,000 tons of sugar cane each year, they may be closer to actually producing renewable energy than Hawaii BioEnergy is. Alan Kennett, president and general manager of Gay & Robinson, suggested that his company could begin ethanol production as early as next year.

David Pimentel, professor of ecology and agricultural sciences at Cornell University in Ithaca, N.Y., said the fact that there would soon be various options for renewable energy in Hawaii was a step in the right direction.

?Any investment in renewable energy is a good investment,? he said. ?Beyond that, Hawaii should be practicing general conservation with smaller cars, less air-conditioning and decreased consumption over all.?

If anybody understands the need for conservation in Hawaii, Mr. Cole does. A stocky man with a graying goatee, he grew up in Kailua, a suburb of Honolulu, hiking through tropical forests and hanging out on beaches with friends. His first job on the island was delivering copies of The Honolulu Advertiser. He attended the University of Hawaii as an undergraduate.

Mr. Cole left Maui for law school on the mainland in the 1970s. Though he spent almost 30 years there before returning to head Maui Land and Pineapple in 2003, his love for the local environment still runs deep; he regularly rhapsodizes about the beauty of dawn, the sweet sounds of birds and the annual migration of humpback whales.

He also serves as chairman of the Hawaii Nature Conservancy.

Mr. Cole has extended these pro-environment ideals to many of his business decisions. This year, when construction crews dismantled the former Kapalua Bay Hotel, which is owned by a subsidiary of Maui Land and Pineapple, Mr. Cole required them to reuse 97 percent of the material in the company?s new offices.

Instead of recycling, he called the process ?upcycling,? and noted that his desk was a door in its former life.

Planning the next development ? an upscale neighborhood on the slopes of Mount Haleakala called Haliimaile (pronounced hah-lee-ee-my-lee) ? Mr. Cole has commissioned architects to design the enclave to minimize vehicle use, create a natural water filtration system, and incorporate solar and wind energy so residents generate more power than they consume.

Though the neighborhood is still in the permitting process and probably years away, Mr. Cole said he hoped this kind of forward thinking, together with the efforts of Hawaii BioEnergy, would eventually inspire outsiders to look to Hawaii for ideas about responsible and sustainable development.

?The whole world is looking for models,? he said. ?Years from now, when people think about renewable energy, I want them to look here and say, ?If it worked for Hawaii, it can work for us.? ?

Copyright 2007 The New York Times Company

Source: New York Times

Ethanol facility tax credit.

http://www.capitol.hawaii.gov/hrscurrent/Vol04_Ch0201-0257/
HRS0235/HRS_0235-0110_0003.htm

?235-110.3 Ethanol facility tax credit. (a) Each year during the credit period, there shall be allowed to each taxpayer subject to the taxes imposed by this chapter, an ethanol facility tax credit that shall be applied to the taxpayer’s net income tax liability, if any, imposed by this chapter for the taxable year in which the credit is properly claimed.

For each qualified ethanol production facility, the annual dollar amount of the ethanol facility tax credit during the eight-year period shall be equal to thirty per cent of its nameplate capacity if the nameplate capacity is greater than five hundred thousand but less than fifteen million gallons. A taxpayer may claim this credit for each qualifying ethanol facility; provided that:

(1) The claim for this credit by any taxpayer of a qualifying ethanol production facility shall not exceed one hundred per cent of the total of all investments made by the taxpayer in the qualifying ethanol production facility during the credit period;

(2) The qualifying ethanol production facility operated at a level of production of at least seventy-five per cent of its nameplate capacity on an annualized basis;

(3) The qualifying ethanol production facility is in production on or before January 1, 2012; and

(4) No taxpayer that claims the credit under this section shall claim any other tax credit under this chapter for the same taxable year.

(b) As used in this section:

“Credit period” means a maximum period of eight years beginning from the first taxable year in which the qualifying ethanol production facility begins production even if actual production is not at seventy-five per cent of nameplate capacity.

“Investment” means a nonrefundable capital expenditure related to the development and construction of any qualifying ethanol production facility, including processing equipment, waste treatment systems, pipelines, and liquid storage tanks at the facility or remote locations, including expansions or modifications. Capital expenditures shall be those direct and certain indirect costs determined in accordance with section 263A of the Internal Revenue Code, relating to uniform capitalization costs, but shall not include expenses for compensation paid to officers of the taxpayer, pension and other related costs, rent for land, the costs of repairing and maintaining the equipment or facilities, training of operating personnel, utility costs during construction, property taxes, costs relating to negotiation of commercial agreements not related to development or construction, or service costs that can be identified specifically with a service department or function or that directly benefit or are incurred by reason of a service department or function. For the purposes of determining a capital expenditure under this section, the provisions of section 263A of the Internal Revenue Code shall apply as it read on March 1, 2004. For purposes of this section, investment excludes land costs and includes any investment for which the taxpayer is at risk, as that term is used in section 465 of the Internal Revenue Code (with respect to deductions limited to amount at risk).

“Nameplate capacity” means the qualifying ethanol production facility’s production design capacity, in gallons of motor fuel grade ethanol per year.

“Net income tax liability” means net income tax liability reduced by all other credits allowed under this chapter.

“Qualifying ethanol production” means ethanol produced from renewable, organic feedstocks, or waste materials, including municipal solid waste. All qualifying production shall be fermented, distilled, gasified, or produced by physical chemical conversion methods such as reformation and catalytic conversion and dehydrated at the facility.

“Qualifying ethanol production facility” or “facility” means a facility located in Hawaii which produces motor fuel grade ethanol meeting the minimum specifications by the American Society of Testing and Materials standard D-4806, as amended.

(c) In the case of a taxable year in which the cumulative claims for the credit by the taxpayer of a qualifying ethanol production facility exceeds the cumulative investment made in the qualifying ethanol production facility by the taxpayer, only that portion that does not exceed the cumulative investment shall be claimed and allowed.

(d) The department of business, economic development, and tourism shall:

(1) Maintain records of the total amount of investment made by each taxpayer in a facility;

(2) Verify the amount of the qualifying investment;

(3) Total all qualifying and cumulative investments that the department of business, economic development, and tourism certifies; and

(4) Certify the total amount of the tax credit for each taxable year and the cumulative amount of the tax credit during the credit period.

Upon each determination, the department of business, economic development, and tourism shall issue a certificate to the taxpayer verifying the qualifying investment amounts, the credit amount certified for each taxable year, and the cumulative amount of the tax credit during the credit period. The taxpayer shall file the certificate with the taxpayer’s tax return with the department of taxation. Notwithstanding the department of business, economic development, and tourism’s certification authority under this section, the director of taxation may audit and adjust certification to conform to the facts.

If in any year, the annual amount of certified credits reaches $12,000,000 in the aggregate, the department of business, economic development, and tourism shall immediately discontinue certifying credits and notify the department of taxation. In no instance shall the total amount of certified credits exceed $12,000,000 per year. Notwithstanding any other law to the contrary, this information shall be available for public inspection and dissemination under chapter 92F.

(e) If the credit under this section exceeds the taxpayer’s income tax liability, the excess of credit over liability shall be refunded to the taxpayer; provided that no refunds or payments on account of the tax credit allowed by this section shall be made for amounts less than $1. All claims for a credit under this section must be properly filed on or before the end of the twelfth month following the close of the taxable year for which the credit may be claimed. Failure to comply with the foregoing provision shall constitute a waiver of the right to claim the credit.

(f) If a qualifying ethanol production facility or an interest therein is acquired by a taxpayer prior to the expiration of the credit period, the credit allowable under subsection (a) for any period after such acquisition shall be equal to the credit that would have been allowable under subsection (a) to the prior taxpayer had the taxpayer not disposed of the interest. If an interest is disposed of during any year for which the credit is allowable under subsection (a), the credit shall be allowable between the parties on the basis of the number of days during the year the interest was held by each taxpayer. In no case shall the credit allowed under subsection (a) be allowed after the expiration of the credit period.

(g) Once the total nameplate capacities of qualifying ethanol production facilities built within the State reaches or exceeds a level of forty million gallons per year, credits under this section shall not be allowed for new ethanol production facilities. If a new facility’s production capacity would cause the statewide ethanol production capacity to exceed forty million gallons per year, only the ethanol production capacity that does not exceed the statewide forty million gallon per year level shall be eligible for the credit.

(h) Prior to construction of any new qualifying ethanol production facility, the taxpayer shall provide written notice of the taxpayer’s intention to begin construction of a qualifying ethanol production facility. The information shall be provided to the department of taxation and the department of business, economic development, and tourism on forms provided by the department of business, economic development, and tourism, and shall include information on the taxpayer, facility location, facility production capacity, anticipated production start date, and the taxpayer’s contact information. Notwithstanding any other law to the contrary, this information shall be available for public inspection and dissemination under chapter 92F.

(i) The taxpayer shall provide written notice to the director of taxation and the director of business, economic development, and tourism within thirty days following the start of production. The notice shall include the production start date and expected ethanol fuel production for the next twenty-four months. Notwithstanding any other law to the contrary, this information shall be available for public inspection and dissemination under chapter 92F.

(j) If a qualifying ethanol production facility fails to achieve an average annual production of at least seventy-five per cent of its nameplate capacity for two consecutive years, the stated capacity of that facility may be revised by the director of business, economic development, and tourism to reflect actual production for the purposes of determining statewide production capacity under subsection (g) and allowable credits for that facility under subsection (a). Notwithstanding any other law to the contrary, this information shall be available for public inspection and dissemination under chapter 92F.

(k) Each calendar year during the credit period, the taxpayer shall provide information to the director of business, economic development, and tourism on the number of gallons of ethanol produced and sold during the previous calendar year, how much was sold in Hawaii versus overseas, feedstocks used for ethanol production, the number of employees of the facility, and the projected number of gallons of ethanol production for the succeeding year.

(l) In the case of a partnership, S corporation, estate, or trust, the tax credit allowable is for every qualifying ethanol production facility. The cost upon which the tax credit is computed shall be determined at the entity level. Distribution and share of credit shall be determined pursuant to section 235-110.7(a).

(m) Following each year in which a credit under this section has been claimed, the director of business, economic development, and tourism shall submit a written report to the governor and legislature regarding the production and sale of ethanol. The report shall include:

(1) The number, location, and nameplate capacities of qualifying ethanol production facilities in the State;

(2) The total number of gallons of ethanol produced and sold during the previous year; and

(3) The projected number of gallons of ethanol production for the succeeding year.

(n) The director of taxation shall prepare forms that may be necessary to claim a credit under this section. Notwithstanding the department of business, economic development, and tourism’s certification authority under this section, the director may audit and adjust certification to conform to the facts. The director may also require the taxpayer to furnish information to ascertain the validity of the claim for credit made under this section and may adopt rules necessary to effectuate the purposes of this section pursuant to chapter 91. [L 2000, c 289, ?2; am L 2004, c 140, ?2]

Note
The 2004 amendment applies to taxable years beginning after December 31, 2003. L 2004, c 140, ?4.