Just as Predicted: EU Announces Anti-Subsidy Investigation of US Ethanol Exports

Things just got a little more interesting on the ethanol - and "green" subsidies - front:

The association which represents European ethanol producers is requesting that the European Commission take action “against unfair imports of fuel ethanol from the United States.”

ePure claims that U.S. ethanol policy has encouraged production to the point that it can be sold at much lower prices on the world market. “Massive and sudden imports of US ethanol, combined with unfairly low prices over the last few years, have seriously damaged the economic situation of European producers” said ePure Secretary-General Rob Vierhout. “The unfair competition of US imports is simply depriving the EU industry from the benefit of this positive evolution on its own domestic market.”

According to the Renewable Fuels Association, ePure is specifically alleging that international ethanol traders were exporting E90 (90 percent ethanol blends) to Europe to take advantage of the European Union’s (EU) lower tariff on such blends as well as the $0.45 per gallon tax credit (VEETC) for ethanol blending in the U.S...

RFA says U.S. ethanol “remains the lowest cost, most cost effective ethanol in the market today. This fact has led to a surge in U.S. ethanol exports to Brazil, Europe, Asia, and the Middle East.”

The U.S. has become a net exporter of ethanol since the beginning of 2009 and exports continue to increase at a rapid pace. The latest reported figures for August from the Energy Information Administration showed 456,000 gallons of imports versus export demand of 52.3 million gallons. Through August, net exports are running at about 15.2 million barrels and are on pace to be double last year.

The whole ePure press release is available here, and the EU today acknowledged that it had received and will investigate ePure's allegations.  And for those of you who are surprised by this development, here's what your humble correspondent predicted almost a year ago when Congress announced a one-year extension of a whole host of "green" subsidies:

Although I'm certainly not a fan of any of these measures, not all of them raise red flags on the trade front. However, several of them do. First, there's the biodiesel "blenders" tax credit, which had expired in 2009 and will be extended through 2011 (with retroactive application through all of 2010). As you'll recall, this bit of green pork has already resulted in the EU's imposition of countervailing duties (CVDs) on US biodiesel exports and a pending copycat investigation in Australia. And according to the WSJ, the EU is investigating allegations by its domestic biodiesel industry that US exporters are trying to circumvent the CVD order by trans-shipping their products through third countries. When the tax credit expired, the CVD order was thought to also be on the outs, but now, well, we get more tariffs and trade frictions with the EU, the likely imposition of Australian tariffs, and the potential for other countries to copy the European case, as all that subsidized US biodiesel is inevitably overproduced and diverted to other foreign markets. Nice.

Speaking of overproduction and foreign market saturation, next up is probably the rottenest piece of green pork in the tax deal: ethanol subsidies and tariffs. Over the last few weeks, many folks - including Al Gore himself! - have explained just how awful America's ethanol policies are. They cost a fortune, distort energy markets, increase food prices, encourage cronyism, and actually harm the environment. (Great video on all of these unintended consequences here.) Unmentioned in those analyses, however, is the serious risk that the United States' ethanol measures will result in new trade disputes. First, the ethanol "blender" tax credit is pretty much identical to the biodiesel subsidies that have attracted EU and Australian tariffs, so they're almost certainly eligible for similar CVDs. According to recent stats, the EU is experiencing record imports of US ethanol, and, as the FT helpfully points out, European producers are getting angry...

Ok, let's see. Subsidized product with a history of trade friction: check! Glut in the domestic market and surging exports: check check! Aggrieved domestic industry with experience using domestic trade laws: check! For those of you keeping score at home, that's the ol' trade dispute superfecta.

So you can't say that you weren't warned.  Indeed, a few weeks after I made this kinda-obvious prediction,  China announced its own investigation into a by-product of (allegedly) subsidized US ethanol.  (Have I mentioned how trade remedies cases tend to reproduce in other jurisdictions?)

So now we have further proof of just how rotten our federal ethanol policies are: not only do they "cost a fortune, distort energy markets, increase food prices, encourage cronyism, and actually harm the environment," but they also cause serious trade frictions in major overseas markets.

But other than that....

More Green Failures to Come?

In just how much trouble are highly-subsidized US green energy firms these days?  Well, if recent news and a new report by the Congressional Research Service are any indication, a whole heckuva lot.  Yesterday we learned that another DOE subsidy recipient, Beacon Power, has joined the much-maligned Solyndra in bankruptcy court:

A Massachusetts energy-storage company that received a $43 million Department of Energy loan guarantee has become the second green tech company backed by U.S. government financing to file for bankruptcy court protection in two months.

Beacon Power's filing for Chapter 11 late Sunday comes in the shadow of the collapse of Solyndra, a $535 million DOE loan guarantee winner that left the Obama administration's clean-energy policy vulnerable to Republican criticism. GOP lawmakers have pointed to Solyndra's bankruptcy and dissolution as evidence that the Obama administration's $35.9 billion program to boost investment in green technology was misguided.

News of Beacon, which makes flywheels that manage energy moving through a power grid, follows the White House announcement last week that it was enlisting Herbert Allison, a former Treasury Department official who has worked in Democratic and Republican administrations, to audit the entire loan program.

National Review's Drew Thornley also directs us to a Politico story, noting that another subsidized green company could be next:

An advanced battery manufacturer that was awarded millions in federal stimulus dollars is now in financial hot water and is being closely monitored by the Energy Department.

New York-based Ener1 received a $118.5 million grant to expand its manufacturing operations in Indianapolis, Ind., run by a subsidiary EnerDel, which received a visit from Vice President Joe Biden earlier this year.

But NASDAQ pulled the firm from trading Friday for failing to file its most recent quarterly report on time. Ener1 also let go of its chairman, Charles Gassenheimer, late last month.

Now DOE says it’s watching the company.

“The department is closely monitoring the status of the company,” DOE spokesman Damien LaVera said in an email Monday.

If we're to believe DOE and the Obama administration, all of these awful developments are shockingly unexpected.  Yet according to a new CRS report on solar projects and the DOE Section 1705 loan guarantees program, a more failures could be ahead because, quite simply, solar manufacturing and generation is really risky business (shocking, I know).  Here's BNA (no link, sorry) with a good summary of the report:

Solar panel manufacturers that have received loan guarantees from the Department of Energy will have to contend with the same market risks that contributed to the bankruptcy of California solar panel maker Solyndra LLC, according to an Oct. 25 Congressional Research Service report.

Those risks include declining solar module prices, competition from new and established solar panel manufacturers, and reductions in subsidies and incentives in European and other international markets, the report said.

“The success or failure of each respective project will likely be determined by the ability of each solar manufacturing project to differentiate its product in the solar marketplace, deliver expected cost and performance objectives, and convince buyers to accept some degree of new technology risk,” the report said.

The Department of Energy has awarded loan guarantees totaling $1.28 billion to solar panel manufacturers under a renewable energy loan guarantee program known as the Section 1705 program, according to Solar Projects: DOE Section 1705 Loan Guarantees.

Eighty-two percent of the approximately $16.15 billion in loans guaranteed under the 1705 program have been for solar projects, including nearly$12 billion for solar generation projects, the report said....

According to the report, solar manufacturing projects might be considered more risky than solar generation projects because the latter often include contractual mechanisms, such as power purchase agreements and service agreements, that allow these projects to weather financial risks.

Only one solar power manufacturing project, SoloPower, which received a $197 million loan guarantee, “might” be considered similar to Solyndra, because it uses the same material—copper indium gallium selenide, a semiconductor composed of copper, indium, gallium, and selenium—in its solar panel manufacturing process.

The report ominously concludes, "Whether or not Section 1705 solar projects will succeed is beyond the scope of this report.  However, each Section 1705 solar manufacturing project will have to address the same market dynamics that may have contributed to Solyndra’s bankruptcy."

I dunno about you, but that makes me feel all warm and fuzzy about the future of these companies and the mountains of taxpayer money lavished upon them.

Sigh.