Ending Ethanol Subsidies Would Save Billions

Published December 4, 2010

There must be some aspect of our insane energy policies that I fail to appreciate. What am I missing?

“We the People” recently booted a boatload of spendthrifts out of Congress, after they helped engineer a $1.3 trillion deficit on America’s FY-2010 budget and balloon our cumulative national debt to $13.7 trillion.

The “bipartisan White House deficit reduction panel” chimed in with a 50-page draft proposal, offering suggestions for $3.8 trillion in future budgetary savings. It targeted $100 billion in Defense Department weapons programs, healthcare benefits, and overseas bases and proposed a $13 billion cutback in the federal workforce and lining out $400 million in unnecessary printing costs.

Sacred Subsidies
Yet, amazingly, not even this independent commission was willing to eliminate the $6 billion sacred cow of annual ethanol subsidies. The current 45 cents per gallon tax credit for blending ethanol into gasoline automatically expires December 31, as does the 54 cents a gallon tariff on imported ethanol. So all senators and congressmen need to do is nothing, and beleaguered taxpayers will save six billion bucks.

We can only hope. Unfortunately, renewable fuel lobbyists are intent on using the lame duck session to perpetuate the special treatment. They have powerful friends in both chambers of Congress and on both side of the political aisle.

Litmus Test
Ethanol and other earmarks represent a key litmus test for fiscal conservatives. Failure to hold the line will create a rocky road for credibility and progress next year. It should be an easy decision. It’s time for action—or more accurately, inaction.

Federal laws already require that gasoline be 10 percent ethanol, and EPA has announced it will allow up to 15 percent ethanol blends for cars and trucks built since 2007. These mandates already require that ethanol use increase from 13 billion gallons today to 36 billion by 2022, ensuring profitable markets for corn growers and ethanol producers even without subsidies.

Even large corn ethanol producers such as Green Plains Energy now say the subsidies are no longer needed.

Fatter Profits
The subsidies and tariffs only fatten profit margins, reduce competition, increase consumer prices, cause frayed relations with Brazil over barriers to its sugar-cane ethanol entering U.S. markets, and stifle technological innovation that could improve production efficiencies and lessen environmental impacts.

As Examiner columnist Timothy Carney observes, “The tax credit won’t boost ethanol consumption at all in the future, because the mandate will set demand. So the tax credit will simply subsidize the ethanol that blenders—i.e., oil companies—would have bought anyway.”

The corn/ethanol lobby says ending the subsidies would cost up to 160,000 jobs. However, a recent study by leading agricultural economists at Iowa State University concludes only 300 jobs would be lost. That means preserving the subsidies will cost $20 million for each job saved.

Billions Lost
Meanwhile, says Louisiana State University professor Joseph Mason, the Interior Department’s offshore drilling moratorium could cost up to 155,000 Gulf Coast jobs. That’s on top of countless billions of lease bonus, rent, royalty, and tax dollars the U.S. Treasury will never see because the government has made billions of barrels of offshore, Alaskan, and Lower 48 oil and gas off limits.

The United States could produce 670 billion gallons of oil (including 480 billion gallons of gasoline and diesel) from a splinter of ANWR one twentieth the size of Washington, DC. Doing so would generate enormous revenues, instead of requiring perpetual subsidies.

By contrast, reaching the 36 billion gallon biofuel mandate would require 15 billion gallons of corn-based ethanol from crop land and wildlife habitat the size of Georgia, plus 21 billion gallons of “advanced biofuel” from switchgrass grown on additional acreage the size of South Carolina.

Growing Opposition
A growing coalition of meat and food producers, environmental groups, and consumer organizations oppose extending the tax credit and tariffs. They emphasize cooking corn to power cars increases corn prices, reduces farmland available for other crops, and drives up the price of beef, pork, poultry, eggs, corn syrup, and all groceries made with those products. It sends meat and egg producers into foreclosure, and it means fewer malnourished people can be fed under current USAID and World Food Organization budgets.

The coalition also points out growing and processing corn into ethanol requires enormous amounts of water for every gallon of alcohol fuel produced. (Cornell University agriculture professor David Pimental estimates the inputs at 8,000 gallons of water per gallon of corn-based ethanol.) Much of the water comes from already-stressed aquifers, and growing the crops results in significant pesticide, herbicide, and fertilizer runoff into our rivers, lakes, bays, and oceans.

It also requires vast hydrocarbon resources, for fertilizers, pesticides, tractors, and tanker trucks.

Producing ethanol from sugar cane carries much lower water demands and environmental impacts.

Small Step, Big Symbol
Pro-subsidy factions say $6 billion is pocket change in a $3.6-trillion federal budget. It may indeed be a small step. But all the caterwauling suggests it is a giant step for Congress, and a hugely symbolic one.

The ethanol mandates interfere in what should be a highly competitive marketplace of ideas and technologies for the nation’s energy future. Congress should not muddy the waters even further by extending the subsidies and protective tariffs.

Paul Driessen ([email protected]) is senior policy advisor for the Committee for A Constructive Tomorrow and the Congress of Racial Equality and is author of Eco-Imperialism: Green Power—Black Death.