Ethanol’s longstanding position of privilege on Capitol Hill may be in danger as the U.S. Senate—by a vote of 73 to 27—voted to end some of the subsidies for the domestically produced fuel.
Ethanol producers and their influential lobby—the Renewable Fuels Association—will probably get a reprieve, however, as the provision eliminating the tax breaks was an amendment to a larger bill that has little chance of receiving congressional approval. Even so, the vote is widely seen as a sign of rocky days ahead for the subsidy recipients. The 27 votes to retain the subsidies came disproportionately from the corn-growing Midwest. Ethanol now appears to have few political supporters outside the Corn Belt.
Tilting the Playing Field
Under various federal statutes enacted over the years, ethanol has come to enjoy a privileged position among U.S. energy sources. Washington-bestowed favors include corn production subsidies to farmers, a 45-cents-per-gallon ethanol production tax credit, a mandate requiring refiners to blend 15 million gallons of ethanol into gasoline annually by 2015, and a 59.5 cents per gallon tariff on imported ethanol.
The import tariff is designed to keep low-cost, sugar-based ethanol from Brazil from competing with domestic corn ethanol.
“Brazil is the world’s lowest-cost high-production ethanol producer,” explains Ken G. Glozer in his book, Corn Ethanol: Who Pays? Who Benefits? “The Brazilians’ cost to produce ethanol is lower than that of the United States, because sugar is three times as efficient as corn in converting sunlight into sugar.”
Diversion from Food Production
While free-market groups have long criticized ethanol subsidies and mandates, ethanol production has recently been criticized by an unexpected source. Citing rising food prices around the world, the World Bank, the United Nations Food and Agriculture Organization, and the International Monetary Fund issued a report in June urging the forthcoming G-20 meeting in Rome to “remove policies that subsidize or mandate biofuels production or consumption.”
“Ethanol subsidies lead to increased taxes and higher fuel costs, and they don’t appear to reduce greenhouse gases,” said Dan Simmons, director of state policy at the Institute for Energy Research. “Worst of all, these subsidies take food out of the mouths of the world’s poor.”
“It would be a nice first step to remove the ethanol tax credits, but that step along will not change much,” Simmons explained. “After all, Congress has previously mandated that we blend millions of gallons of ethanol a year with gasoline. Until Congress removes the ethanol mandates, the harmful effects of these subsidies will continue.”
Bonner R. Cohen, Ph. D. ([email protected]) is a senior fellow at the National Center for Public Policy Research.