The federal government should abolish its tariff on imported ethanol to make possible an affordable alternative to foreign oil, urged Florida Gov. Jeb Bush (R) on June 5 after meeting with Brazil’s Minister of Agriculture, Roberto Rodrigues. Brazil is the world’s leading ethanol producer, exporting 700 million gallons of inexpensive, sugar-based ethanol each year.
“We don’t put a tariff on crude imported from a country like Venezuela, but yet we put a tariff on ethanol, which is a renewable source of energy that provides a clean alternative,” explained Bush. “We’re at a point now where we need to develop strategies to begin that process.”
Tariff Impedes Competition
Bush advocated the United States import 15 billion gallons of ethanol per year by 2025, up from only 66 million gallons per year currently. But Congress must abolish the 54 cents-per-gallon import tax on ethanol before U.S. consumers can benefit from inexpensive ethanol imports, Bush said.
Ethanol currently has a difficult time competing with gasoline in the United States. Even with ethanol benefiting from a 51 cents-per-gallon federal tax credit, per-gallon prices of gasoline and domestically produced, corn-based ethanol are roughly equal. However, ethanol delivers approximately 30 percent fewer miles per gallon than gasoline.
Brazilian ethanol is made from sugar, however, and costs between one-third and one-half as much as regular gasoline. The ethanol mileage tradeoff is therefore more than compensated by the cheap price of sugar-based ethanol.
But the “54-cent-a-gallon tariff on sugar-based ethanol essentially freezes it out of the U.S. market,” noted a June 17 Chicago Tribune house editorial.
“Brazil has the world’s most advanced ethanol industry, and it has a cost advantage because sugar is a more efficient alcohol feedstock than corn,” observed St. Louis Post-Dispatch columnist David Nicklaus in a June 10 article. “But the U.S. slaps a 54-cent-a-gallon tariff on Brazilian ethanol. In other words, our government is trying to encourage development of alternative fuels, while turning its back on a plentiful source of them.”
Added the Tribune, “If this nation is serious about a future in which ethanol plays an ever-greater role in powering cars and trucks, let’s do it in a way that makes some economic sense. Reduce or eliminate the subsidies and tariffs, and let’s find out if ethanol can really become a credible, competitive alternative to gasoline without the federal largess that has propped up the industry for decades. Let the most economic ethanol win.”
“The tariff protects the domestic ethanol industry. But that protection comes at a cost to consumers, especially those in states such as Texas,” the San Antonio Express-News agreed in a May 23 house editorial.
Prices High in Midwest
With the tariff in place, ethanol currently costs more per gallon than gasoline even in places where corn grows plentifully. KELO-TV in Sioux Falls, South Dakota, for example, reported on June 13 ethanol was selling at $2.85 a gallon–five cents more than regular gasoline.
“Ethanol is becoming cost-competitive in the free market, with the added benefit of being a cleaner-burning fuel than gasoline,” Heartland Institute Science Director Jay Lehr said. “But essential to free-market competition is the elimination of prohibitive and protectionist tariffs.
“If free markets are allowed to operate, I believe ethanol will ultimately prove to be a fuel of choice in America,” said Lehr.
James Hoare ([email protected]) is an attorney practicing in Syracuse, New York.
For more information …
“If ethanol is the future, we might want to look to Brazil,” St. Louis Post-Dispatch, June 10, 2006, http://www.stltoday.com/stltoday/business/columnists.nsf/davidnicklaus/story/963B85988EECF9118625718900024EB0?OpenDocument
“Eliminate the tariff on ethanol imports,” San Antonio Express-News, May 23, 2006, http://www.mysanantonio.com/opinion/stories/MYSA052306.1O.ethanol1ed.110787df.html.
PolicyBot™, The Heartland Institute’s free online research database, offers nearly three dozen documents addressing ethanol policy issues. Point your Web browser to http://www.heartland.org, click on the PolicyBot™ button, and select the topic/subtopic combination Agriculture/Ethanol.