A Free-Market Energy Blog

End the Ethanol Subsidies! (Congressional inaction would save taxpayers $6 billion, and bring other benefits too)

By -- November 23, 2010

What am I missing? Is there some aspect of our inane energy policies that I am failing to understand, much less appreciate?

“We the People” just 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.

And 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. The proposal targets $100 billion in Defense Department weapons programs, healthcare benefits and overseas bases. It also proposes a $13-billion cutback in the federal workforce and lining out $400 million in unnecessary printing costs.

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 is intent on using the lame duck session to perpetuate the special treatment. The National Corn Growers Association, Renewable Fuels Association, Growth Energy, ADM and POET ethanol count as friends incoming House Speaker John Boehner, incoming House Ways and Means Committee Chairman Dave Camp, Senate Majority Leader Mitch McConnell, Senate Finance Committee Ranking Member Chuck Grassley, other influential Republicans and scores of prominent Democrats.

Perhaps if DePuy or Sofamor Danek donates some spinal implants, enough wavering legislators will find the backbone to challenge the subsidizers and ensure a little adult supervision over the budget process. If this election was about anything, it was about ending business as usual, ensuring energy and economic common sense, and not bankrupting the United States.

Ethanol and earmarks represent a key litmus test for Republicans and 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% ethanol, and EPA has announced that it will soon decide whether to allow up to 15% 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, without subsidies. Even large corn ethanol producers like Green Plains Energy now say the subsidies are no longer needed.

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 US 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 – ie, 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 that only 300 jobs would be lost. If so, preserving the subsidies works out to $20 million for each job saved.

Meanwhile, says Louisiana State University professor Joseph Mason, the Interior Department’s heavy-handed 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 US Treasury will never see, because Interior, EPA, Congress and the White House have made billions of barrels of offshore, Alaskan and Lower 48 oil and gas off limits.

America could produce 670 billion gallons of oil (including 480 billion gallons of gasoline and diesel) from a splinter of ANWR equal to 1/20 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 cropland 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.

Opposition to extending the tax credit and tariffs also comes from a growing coalition of meat and food producers, environmental groups and consumer organizations. They emphasize that 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 means fewer malnourished people can be fed under current USAID and World Food Organization budgets.

The coalition also points out that 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.

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 that can no longer be avoided. Moreover, if reductions like this are to be rejected as too trivial to trifle with, how do Nanny State legislators justify their intrusive rules on toilets, washing machines, plastic bags and light bulbs? How do they suppose cash-strapped families balance their budgets?

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

(While they’re at it, the lawmakers should also pull the plug on chicken-fat-to-biofuel subsidies. This tax credit is just another unaffordable, feel-good “green energy” boondoggle – that turns waste fat into wasted tax dollars. Reducing effluent streams, garnering positive PR, and selling their “alternative fuel” to oil companies and the Air Force, under utopian biofuel mandates, ought to be adequate incentive.)

These should be easy decisions. They merely take commitment to principles – something our legislators better start discovering, if they want to be around after the next election cycle.


Paul Driessen is senior policy advisor for the Committee For A Constructive Tomorrow and Congress of Racial Equality, and author of Eco-Imperialism: Green Power – Black Death.


  1. GM  

    I guess we can file that one under the “Being right for absolutely the wrong reasons” label…


  2. rbradley  

    Al Gore’s self-confessed deceit on ethanol (any more energy/climate viewsyou are hiding, Mr. Gore?) was summarized at “In the Pipeline” today:

    Canned Corn: Al Gore Tells Supporters He Was Wrong to Support Ethanol Subsidies in the Past – Admits Previous Support Was Based Entirely on Run for President.

    Reuters (11/22) reports, “Former U.S. vice-president Al Gore said support for corn-based ethanol in the United States was “not a good policy”, weeks before tax credits are up for renewal. U.S. blending tax breaks for ethanol make it profitable for refiners to use the fuel even when it is more expensive than gasoline. The credits are up for renewal on Dec. 31. Total U.S. ethanol subsidies reached $7.7 billion last year according to the International Energy Industry, which said biofuels worldwide received more subsidies than any other form of renewable energy. “It is not a good policy to have these massive subsidies for (U.S.) first generation ethanol,” said Gore, speaking at a green energy business conference in Athens sponsored by Marfin Popular Bank. “First generation ethanol I think was a mistake. The energy conversion ratios are at best very small. Big Ethanol responds: “Now he tells us: Al Gore was for grain ethanol before he was against it. Speaking at a green energy business conference in Athens, the former vice president declared “it is not good policy to have subsidies for (U.S.) first-generation ethanol.” Grain ethanol is “a mistake,” Gore said, because its energy conversion ratios are very small, and it contributes to the food price crisis. Explaining his earlier support for grain ethanol, Gore said he had “paid particular attention to the farmers in my home state of Tennessee, and I had a particular fondness for farmers in the state of Iowa because I was about to run for President.”


  3. Jon Boone  

    Although Gore is indeed a muddled woozle on energy and the environment, his coquetry about corn ethanol in Iowa has the ring of truth. The quicksand of the state’s early primary had also flummoxed John McCain and Hilary Clinton in 2008, both of whom in the past had caustically criticized the effort to subsidize something as dumb as ethanol.

    Republicans are no strangers to bellying up for the swill of energy subsidy, as George Gilder http://online.wsj.com/article/SB10001424052748703305404575610402116987146.html) and Kim Strassel http://online.wsj.com/article/potomac_watch.html) both pointed out recently in two perceptive op eds in the Wall Street Journal. Olympia Snowe and Susan Collins from Maine are joined at the hip with Barbara Boxer and Dianne Feinstein. And now there’s Colin Power and George W. Bush sucking wind with Gore and Clinton.

    As Robert Bryce pointed out in his book, Gusher of Lies, wind technology is the electricity sector’s equivalent to the ethanol scam. Now, in lieu of the Iowa primary, we can all watch the bipartisan dive to the bottom on behalf of Senator Jeff Bingaman’s bill for Enronesque national renewable energy standards, sponsored as it is by Collins and Sam Brownback. Do look for the exquisite dance moves of incoming Speaker John Boehner and Majority Leader Eric Cantor as they pirouette around their pecksniffian sanctimony about cutting the pork while working to give the pigs of wind more flight feathers.


  4. Robert Bryce  

    Good piece. And now, even Al Gore is saying ethanol was a “mistake.” Why did he support it for so long? A: The Iowa primary.
    Recall that the Iowa primary was an essential part of Barack Obama’s march to the White House.
    But now that Gore has seen the light, when will he retract the foolishness in “An Inconvenient Truth?” which ends with this admonition on the screen: “Reduce our dependence on foreign oil, help farmers grow alcohol fuels.”


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