Cellulosic ethanol, a gasoline produced from non-food biomass, is the latest renewable-energy trend to hit Michigan. In a bid to host the nation’s first operating cellulosic ethanol plant, Gov. Jennifer Granholm has enticed Massachusetts-based Mascoma Corp. to Chippewa County with state financial incentives that include a $15 million grant and research support from state universities. Unfortunately, cellulosic ethanol’s potential as an environmental and economic boon is far from certain, and taxing Michigan businesses and residents to fund this dubious project is a bad deal.

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Ironically, the cellulosic ethanol program may have a mixed environmental impact. Mascoma plans to tap Michigan’s considerable forest resources by using wood pulp as cellulosic feedstock. This process will create a lively market for forestry residue, increasing the price of wood pulp. Since cellulosic ethanol will be part of the gasoline market, its price — and thus the price of cellulosic feedstock — will be tightly linked to that of oil. Obviously, oil prices have shot through the roof, which means that the cellulosic ethanol market may begin to draw higher quality lumber, not just waste wood. Higher demand will lead to a higher price, which will stimulate more supply — in this case, more trees being felled to fuel the fire.

If cellulosic ethanol does succeed, of course, providers of raw cellulosic materials will be able to invest in sustainable ways to meet the larger demand for wood, such as replanting forests or starting tree farms. Still, it is hard to imagine environmentalists letting even a "green" industry cause such widespread disruption of wildlife habitats. If cellulosic ethanol does not prove viable in the long-term, however, these renewable alternatives will not have a chance to take root. In this case, forests harvested in the initial surge may not be restored, resulting in state-subsidized environmental damage.

And the success of the cellulosic ethanol venture is hardly guaranteed. While demonstration production plants for cellulosic ethanol exist, no full-scale plant has yet been built. The U.S. Department of Commerce notes that cellulosic ethanol costs twice as much to produce as corn ethanol, which itself requires hefty government subsidies to remain competitive. Furthermore, while ethanol is popular now, much cleaner options such as hydrogen fuel cells are in the pipeline and may soon drive ethanol the way of Betamax and Laserdisc.

None of this is good news for Michigan residents. A strong economy requires a thriving business environment, but Michigan businesses already face heavy taxes and oppressive regulation. Raising taxes on existing companies to subsidize unproven ones is no growth strategy; a wiser investment would be to give tax relief to existing businesses. Grants like those to Mascoma only squeeze stable businesses to shower benefits on companies that apparently cannot stand without government support.

Nor will the grant help Michigan’s employment rate. Employment requires employers, and laying more taxes on existing businesses can only darken the jobs outlook. Regardless of optimistic forecasts of the project’s "creating" several hundred jobs, the true winner is Mascoma, not Michigan as a whole.

In fairness, Michigan government is not alone in betting on cellulosic ethanol; General Motors Corp. has also invested in the Mascoma plant. Still, this does not mean that taxpayers should be forced to finance it as well. Unlike private investors, taxpayers cannot choose whether to make riskier or safer investments — they must pay for whatever projects the state selects. And unlike private fund managers, the state typically makes financial decisions based on political, not economic, calculations. Not surprisingly, the Michigan Economic Development Corp.’s investment portfolio is not stellar. Furthermore, the MEDC grant is not really an investment, since the taxpayers stuck with the $15 million bill will not directly profit even if the project succeeds.

Certainly $15 million is small relative to the entire state budget. But $10 million here and $20 million there add up to a large deficit and oppressive taxes. Treating $15 million dollars as chump change will not promote economic success.

Michigan taxpayers do not stand to benefit if the state buys the honor of having the first commercial cellulosic ethanol plant. The true solution to Michigan’s struggling economy lies not in frittering away millions of taxpayer dollars on favored businesses, but in giving every business room to thrive.


Hannah K. Mead is a communications intern for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.

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