Biofuels Industry Fights to Preserve Subsidies, Guaranteed Market Share

Published January 15, 2014

Faced with the expiration of federal tax credits they deem essential to their industry, biofuels producers are lobbying Congress for new taxpayer subsidies.

Permanent, Higher Subsidies?
In December 2013, Rep. Scott Peters (D-CA) introduced two bills that would continue the federal government’s biofuels industry subsidies. Peters’ “Second Generation Biofuel Extension Act of 2013” would renew the so-called second-generation biofuels tax credit for one year, extending it from January 1, 2014 to January 1, 2015. The bill would also extend the special allowance for second-generation biofuel plant property for the same time period.

Peters, chairman of the Congressional Biomass Caucus, also introduced his “Igniting American Research Act,” which would give permanent status to federal tax credits for biofuel research and development. The bill would also increase the subsidies, known as the Alternative Simplified Credit, from 14 percent to 20 percent.

Like many other tax credits, including the wind production tax credit (PTC), the tax breaks addressed by Peters’ legislation expired at the end of 2013. Congress is debating whether to extend them into 2014 and beyond. Both bills have been referred to the House Committee on Ways and Means, which has jurisdiction over tax bills.

Peters’ legislation enjoys the enthusiastic support of such special interest groups as the Renewable Fuels Association (RFA), the ethanol industry’s most influential Washington-based trade group, and the Algae Biomass Organization.

Meanwhile, the biodiesel industry is pushing the U.S. Environmental Protection Agency (EPA) for an increase in the biodiesel mandate under the federal renewable fuels standard (RFS). Ideally, from the industry’s perspective, EPA would match, if not increase, its 2013 biomass diesel mandate while Congress renews the $1.00 per gallon tax credit for blenders, which, like so many other tax credits, expired at the end of 2013. The biomass-based diesel RFS for 2013 was 1.28 billion gallons and the advanced biofuel RFS was 2.75 billion gallons.

Illusory Job Creation
“The biofuels industry—like all renewables that depend on taxpayer-funded subsidies—cries about the loss of jobs if the handouts are discontinued,” said Marita Noon, executive director of New Mexico-based Alliance for Responsible Energy. “But the jobs ‘created’ by subsidies and guaranteed market share for the biofuels industry come at the expense of jobs prevented and destroyed in the conventional fuels industry. Moreover, by forcing consumers to hand over tax subsidies and pay higher prices for biofuels, the subsidies and mandates kill additional jobs throughout the entire economy.

“People who would otherwise have more money to purchase more goods and services throughout the economy can no longer do so because of the biofuels subsidies and mandates,” Noon explained. “The biofuels subsidies and mandates lower our standard of living, as money that would otherwise purchase desired goods and services now must be directed to paying unnecessarily high prices for expensive biofuels. The few jobs created in the biofuels industry don’t nearly offset the even greater number of jobs prevented and destroyed throughout the economy.”

Heavy Environmental Toll
Biofuels subsidies and mandates come at environmental as well as economic expense, new research shows. In a lengthy investigative report published in November 2013, Associated Press reporters Dina Cappiello and Matt Apuzzo documented extensive environmental damage caused by ever-increasing corn-ethanol production.

“As farmers rushed to find new places to plant corn, they wiped out millions of acres of conservation land, destroyed habitat and polluted water supplies,” the AP investigation found. “Five million acres of land set aside for conservation—more than Yellowstone, Everglades and Yosemite National Parks combined—have vanished on Obama’s watch.”

“Sprayers pumped out billions of pounds of fertilizer, some of which seeped into drinking water, contaminated rivers and worsened the huge dead zone in the Gulf of Mexico where marine life can’t survive,” the two reporters observed. “The consequences are so severe that environmentalists and many scientists have now rejected corn-based ethanol as bad environmental policy.”

The Clean Air Task Force, Environmental Working Group, Friends of the Earth, Oxfam America, and Action Aid USA are some of the environmental and human welfare groups urging Congress to eliminate corn ethanol subsidies and mandates.  

Bonner R. Cohen, Ph. D., ([email protected]) is a senior fellow at the National Center for Public Policy Research.