Blatant Reality

It always shocks me to see articles where the reporter seems shocked that a subsidy or some other government intervention into the market will end up causing more harm than good. This is the exact tone that is taken in a recent Washington Post article titled “The unintended ripples from the biomass subsidy program.”

In this article, the author argues that the government’s recent “Biomass Crop Assistance Program” will end up costing millions, if not billions, more then expected as well as drastically increase the cost of many cheap wood products.

It sounded like a good idea: Provide a little government money to convert wood shavings and plant waste into renewable energy.

But as laudable as that goal sounds, it could end up causing more economic damage than good — driving up the price of raw timber, undermining an industry that has long used sawdust and wood shavings to make affordable cabinetry, and highlighting the many challenges involved in decreasing the nation’s dependence on oil by using organic materials to create biofuels.

In a matter of months, the Biomass Crop Assistance Program — a small provision tucked into the 2008 farm bill — has mushroomed into a half-a-billion dollar subsidy that is funneling taxpayer dollars to sawmills and lumber wholesalers, encouraging them to sell their waste to be converted into high-tech biofuels. In doing so, it is shutting off the supply of cheap timber byproducts to the nation’s composite wood manufacturers, who make panels for home entertainment centers and kitchen cabinets.

(…)

In at least some cases, that’s not happening. The federal government can provide up to $45 a ton in matching payments to businesses that collect, harvest, store and transport biomass waste to an authorized energy facility. That means sawdust or wood shavings may be twice as valuable if a lumber mill sells them to a biomass energy company instead of to a traditional buyer.

This is bad news for the composite panel industry, which turns these materials into particleboard and medium-density fiberboard, and outranks the U.S. biomass industry in terms of employees and economic impact, with 21,000 employees and annual sales of $7.9 billion, according to 2006 U.S. Census data.

The biomass subsidy program could “wipe us out,” said T.J. Rosengarth, the vice president and chief operating officer of Flakeboard, the largest composite panel producer in North America. “You can say, ‘I’ve made more alternative energy,’ but at what expense?”

Pay special attention to the bold sections above. In certain cases, the government is essentially giving wood producers twice as much money to sell their wastes for biofuel instead traditional products. This will essentially inflate the price of wood waste on the open market to the government subsidized level, forcing everyone to pay that price.

Once again, this is a perfect example of why not to create fuel from sources that already have broad, alternative uses. This is why I am a very big supported of alternative fuels like algae that do not have any current uses in our market other than very limited uses in nutraceuticals and some health foods.

While this subsidy may be beneficial in some regards for increasing alternative fuels, the unintended consequences like the case above are almost never addressed or even foreseen. Sadly, this is just another example of the government potentially doing more harm then good through a bill that relies on agencies to implement the vague instructions located within it.