Congress Extends Subsidies, Special Favors for Ethanol

Published January 3, 2011

Congress has voted to extend taxpayer subsidies for domestically produced ethanol and extend tariffs on imported ethanol, in a move analysts say will drive up food costs and harm the U.S. economy.

Taxpayer Dollars Given Away
In mid-December, Congress passed a one-year extension of a 45-cent per gallon tax credit on domestic ethanol production and a 54-cent per gallon ethanol import tariff, as well as a $1 per gallon blenders’ tax credit for biodiesel. The $1 tax credit had expired in 2009, and the other two were due to expire at the end of 2010. All three are now extended through 2011.

The special-interest subsidies were approved as part of a tax package signed into law by President Barack Obama.

Consumer groups and advocates for the poor say the tariff and subsidies drive up food costs.

“Congress has decided to waste billions of dollars by extending taxpayer handouts to Big Corn,” said Daniel Simmons, director of state affairs for the Institute for Energy Research. “In the words of Jean Ziegler, the United Nations special rapporteur on the right to food, biofuels are a ‘crime against humanity’ because they reduce the availability of food.”

Currently, 40 percent of the U.S. corn crop is diverted to ethanol production.

Multiple Concerns
“The problem with the tax credit is three things,” said Harry de Gorter, a professor at Cornell University and a visiting fellow at the Cato Institute in Washington, DC. “First, it’s the costs. It costs taxpayers billions and billions of dollars, about $6 billion a year.”

“The second problem,” said de Gorter, “is it’s redundant. When you have a mandate, a tax credit is not needed. You already get the requisite ethanol [level].”

And the third problem, according to de Gorter?

“The third is it’s worse than redundant. … It contradicts all your environmental goals.”

Politicians are starting to grasp those concepts, de Gorter said. A bipartisan group of 17 senators sent a letter to congressional leadership in the days before the tax bill passed, requesting an end to ethanol subsidies and biofuel tax credits. The credits are unnecessary, the Democrat and Republican senators wrote, because the Renewable Fuels Standard under the 2005 U.S. Energy Policy Act already mandates the production of almost 14 billion gallons of ethanol by 2011.

“So my prediction is [the subsidies will be] gone next year,” he said. “But the question is, if the subsidies are not extended, will Congress similarly eliminate ethanol mandates?”

Those debates still need to take place, de Gorter said.

Cheryl K. Chumley ([email protected]) writes from northern Virginia.