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Investing in Sustainability

Another Ethanol Scam Uncovered!

Written by Jeff Siegel
Posted April 23, 2014

How many times do we have to do things ass-backwards before we can move forward?

In the never-ending case of the great ethanol scam in the United States, we are once again confronted with the reality that ethanol is nothing more than a government-funded boondoggle designed to cater to the wishes of Washington's largest donors.

ethanol14If you're a regular reader of these pages, you know that ethanol is a costly, environmentally unsustainable replacement for gasoline.

And if it weren't for the renewable fuels standard, which was initially ordered by the 2007 Energy Independence and Security Act, there would be no stickers on gas pumps declaring “10% ethanol.”

The bottom line is that ethanol is little more than a gift to Big Ag. And thus far, they've managed to pilfer tens of billions of tax dollars from this racket — all under the guise of energy security and the environment.

One More Con

The energy security claim is laughable at best. How “secure” are we when we forfeit our food to fill our tanks? You want some energy security? Phase out the antiquated internal combustion engine.

And don't even get me started on the moral issues surrounding using arable land to grow fuel instead of food. If you've ever needed an example of blatant human arrogance, look no further than the misuse of our soil and water.

And as far as the environmental benefits — well, there aren't any. And you'll find no bigger tree hugger here at Energy and Capital than me. If there were environmental benefits, I'd be the first person in this office to scream them from the rooftops. But alas, it's just one more con coming out of Washington.

In fact, just last week, a new study published in the journal Nature Climate Change found that biofuels derived from corn stover emit more carbon dioxide than gasoline.

This report, by the way, was released around the same time the Intergovernmental Panel on Climate Change released a study that found some biofuels are now releasing indirect emissions that actually contribute to total emissions that are worse than those coming from gasoline and diesel.


Despite my disgust with this ethanol welfare sham, I still believe honest free markets can correct the behavior of bloated bureaucrats and reward entrepreneurship and good ideas. In fact, one area of great opportunity right now is sustainable agriculture.

I'm personally bullish on (and invest accordingly in) organic farmland and sustainable agricultural practices both here and abroad.

In the United States, demand for local, organic food has not waned. Sure, it still represents an incredibly small part of our entire food system. If you charted it, you'd actually see that organics measure up to what some might consider an accounting error. But those using this market as an opportunity continue to do quite well.

Hell, just look at the decades-long success of Whole Foods (NASDAQ: WFM) if you need any convincing.

Whole Foods Chart 4-23And outside of the United States, there are huge opportunities — particularly in Brazil, where sustainable farmland and plantations are drawing big-money organic players that are finding cheaper land and operating costs.

Of course, you don't have to have a net worth of $1 billion to wet your beak. There are always opportunities for smaller investors to take this ride. And next Monday, we'll be sharing one of those with you. So keep a lookout for that one.

Until then, do yourself a favor and avoid ethanol stocks. They're going to get slammed.

To a new way of life and a new generation of wealth...

Jeff Siegel Signature

Jeff Siegel

follow basic@JeffSiegel on Twitter

Jeff is the managing editor of Energy and Capital and contributing analyst for the Energy Investor, an independent investment research service focusing primarily on stocks in the oil & gas, modern energy and infrastructure markets.  He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks. For more on Jeff, go to his editor's page.

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