California Ends Ethanol Subsidies

Published October 16, 2012

Ethanol no longer qualifies for financial benefits under California’s Alternative and Renewable Fuel and Vehicle Technology Program, in the wake of legislation signed by Gov. Jerry Brown (D).

Assembly Bill 523, authored by Assemblyman David Valadao (R-Hanford), eliminates all future state funding for the production of ethanol derived from corn. The new law, which was supported by environmental activist groups such as the Sierra Club and the Union of Concerned Scientists, removes approximately $6 million in subsidies provided to the state’s small group of corn ethanol producers. The money will now be directed to other forms of renewable energy, including ethanol not derived from corn.

Federal Preferences Remain

Rob Vandenheuvel, general manager of the Milk Producers Council, says AB 523 is just a drop in the bucket compared to the federal support ethanol producers get. 

“What our bill does is strip away a government mandate that helps provide a guaranteed market for corn-based ethanol in California,” said Vandenheuvel.

Approximately 40 percent of the United States corn crop is turned into ethanol instead of food for consumers or livestock. 

“I’m not going to tell the corn growers who to sell their corn to. Who knows, the corn ethanol industry might still be able to compete for the corn without government subsidies, but the government shouldn’t be in charge of determining the economic winners and losers by granting subsidies to the industries it favors,” Vandenheuvel explained. 

Consumers Suffering

Bill Van Dam, CEO of the Alliance of Western Milk Producers, notes consumers are suffering because of ethanol subsidies and preferences.  

“California passed a special package that guaranteed ethanol producers make a profit no matter what. What AB 523 does is abolish the $6 million in payments every year to California’s ethanol producers. As a result, California’s taxpayers will no longer be on the hook for this money,” said Van Dam.

“Before the federal programs incentivized growing corn for ethanol, corn cost around $2 a bushel in 2007. Today it costs about $7.25, and that’s why we have rising milk prices,” Van Dam observed. 

Van Dam predicts state consumers won’t see much price relief because California’s subsidy was tiny compared to federal programs that induce burning a significant portion of the nation’s food supply in automobile engines. 

Roll Back Preferences

Colin Carter, professor and the director of the Giannini Foundation of Agricultural Economics at the University of California-Davis, agrees consumers would benefit from a rollback of federal ethanol preferences.

“Replacing corn-based ethanol in fuel mixtures is getting heated up globally. The European Union just recently scaled back the amount of ethanol they’re willing to use in their fuel mixtures, from 10 percent to 5 percent,” Carter said. 

“Also, the U.S. Environmental Protection Agency has put out a call for comment by October 11 on petitions from six governors to suspend the U.S. ethanol mandate, which requires refiners to blend ethanol into gasoline. This will be huge, because we’re using billions of gallons of corn ethanol in our fuel every year,” Carter explained.

H. Sterling Burnett, a senior fellow with the National Center for Policy Analysis, noted the legislation highlights environmental activists’ frequently changing environmental positions.

“It’s funny how California’s environmentalists are against ethanol when a decade ago they were all for it,” Burnett said. 

Kenneth Artz ([email protected]) writes from Dallas, Texas.