Action on Ethanol Will Tell Us if Congress Is Serious about Deficit Reduction

Published December 13, 2010

We could learn soon – possibly as soon as Monday – if federal lawmakers who say they are serious about fiscal responsibility mean it.

A vote to extend the 2001 and 2003 tax cuts could happen Monday, and the wheeling and dealing to win the necessary votes includes agreements to continue multi-billion-dollar boondoggles. One of the worst would be continuing subsidies to the ethanol industry.

Ethanol is a form of alcohol that can be blended into gasoline, ostensibly to reduce “greenhouse gas emissions.” Subsidies for ethanol are supposed to end on December 31.

The truth is there’s lots of science that says ethanol produces more of those emissions than straight gasoline. And, oh yes, ethanol has about one-third less energy than gasoline, so fuel with ethanol in it reduces gas mileage, which means we spend more to run our vehicles.

Ah, but ethanol in the U.S. is made primarily from corn, and what’s more American than corn?! It’s a mainstay crop of farmers across the country because of federal agriculture subsidies. Who could say ‘no’ to raising a crop the government pays you to grow even as it pays other people to turn the crop you were paid to grow into a lousy motor fuel?

The government this year has spent $6 billion to subsidize the blending of ethanol into gasoline – that works out to about 45 cents a gallon – and also slaps a 54-cents a gallon tax on ethanol produced outside the country, where producers usually use sugar or other crops to make ethanol less expensively and more efficiently. That tax on foreign-produced ethanol helps enable our domestic producers to continue producing ethanol as inefficiently as they like.

Earlier this month President Barack Obama’s deficit reduction commission submitted its report. The commission recommended tax increases and spending cuts on items including national defense, the federal workforce, and Medicare/Medicaid. Nowhere in the report was there a mention of ending the ludicrous ethanol subsidy. What does it say about the hold the corn and ethanol industries have on government when our deficit commission can recommend cuts in national defense and Medicare and say nothing about ending ethanol spending?

This, this … oversight? … could be because one of the 18 commission members was one of the biggest champions of the ethanol boondoggle: Sen. Kent Conrad (D-North Dakota). He has teamed with Sen. Charles Grassley (R-Iowa) to lead the fight to extend the ethanol subsidies.

Iowa and the Dakotas do have lots of corn being grown. But they also have lots of other farmers who use corn as food for chickens, pigs, and steers, and who are seeing prices for their animal feed climb as a result of the diversion of corn to ethanol production. They also have voters who get hungry each day and who are paying higher prices on the food they eat as a result of the ethanol boondoggle. So do lawmakers all across the country.

So the question is: Will lawmakers stand with the vast majority of their constituents and end a subsidy that causes people to spend more on food and energy than they should be spending? Or will they stand with a handful of grain farmers and corporations that reap billions of dollars annually by producing a product that has virtually none of the benefits we were promised when the subsidy was first enacted?

If the ethanol subsidy ends, we’ll know lawmakers are serious about ending runaway government spending. If the ethanol subsidy continues, we’ll know they’re not.

Steve Stanek ([email protected]) is a research fellow at The Heartland Institute in Chicago.