Last Call for Ethanol Subsidies

A $5 billion per year tax credit for ethanol is about to expire. Is it time for the ethanol industry to grow up and stand on its own?

  • ethanol
    According to a new report, corn ethanol costs taxpayers $1.78 to reduce gasoline consumption by 1 gallon.

  • ethanol

Like a sailor on a late night bender, corn ethanol boosters are belly up to the bar trying to cajole another drink from the subsidy tap before the lights come on. Some in Congress seem all too ready to give in , costing taxpayers billions in the process. But in light of the yawning budget deficit and the failed promise, ethanol should be forced to make its own way in the marketplace.

Like alchemy of old, the idea of turning corn into fuel is an attractive one – a renewable, domestic, more efficient fuel. So for years Congress has lavished a tax credit, import tariff on foreign ethanol, usage mandate, and other subsidies in an effort to give the industry a leg up. But these efforts have yielded as much success as the alchemist had turning lead into gold. And according to a new Congressional Budget Office reportUsing Biofuel Tax Credits to Achieve Energy and Environmental Policy Goals, "the costs to taxpayers of using a biofuel to reduce gasoline consumption by 1 gallon are $1.78 for ethanol made from corn and $3.00 for cellulosic ethanol."

To promote the use of ethanol , we give fuel blenders (generally the big oil companies) a 45 cents per gallon tax credit. That costs more than $5 billion per year. But the Volumetric Ethanol Excise Tax Credit (VEETC) expires at the end of the year, and the industry is scrambling to keep the subsidies flowing.

The Renewable Fuels Association and their allies are trying to get something – anything – in place. The tax writers in the House are considering a proposal to extend the tax credit for another year, but at a lower rate – 36 cents per gallon. That would still cost $3.8 billion. And under budget rules, Congress would have to find offsetting spending cuts or revenue increases to pay for the extension.

Just this week another ethanol enabler, Growth Energy, rolled out a plan to end the subsidies. Well, not really. Sure, they called for phasing out the tax credit – so far so good – but then replace it with infrastructure subsidies so that ethanol could compete in a "fair and open market." Apparently the irony was lost on them. Instead of tax credits, Growth Energy wants money to pay for pumps at gas stations and pipeline infrastructure. Oh, and a mandate that all vehicles sold in the U.S. be flex-fuel.

Let's not forget, VEETC isn't the only subsidy the ethanol industry is bingeing on. There is a renewable fuels mandate to use biofuels, predominantly corn ethanol. The Government Accountability Office has pointed out that this mandate, which will go up to 15 billion gallons by 2015, is the primary driver of ethanol production. So why should we just give billions in tax credits to oil companies to use something they were going to use anyway?

8/2/2010 11:44:28 AM

Who believes the oil industry is no longer subsidized by the tax payers? No me. The tax payers still pay to clean up oil spills, we still pay to protect/envade oil producing countries. Let's be honest people, the US Gov't will always spend tax money on something. And the loss of this (if it happens) subsidy will not hurt the American Farmer's price of corn. (The price of corn came down 2 years ago to the $2.00-$2.50/bushel range. You remember, Don't you? When the price of food came back down because "all the corn is used to make fuel" was freed up to make food again. By the way, my box of cereal never came down. What a lie that was. My dad still farms and I still head home to help him. So I watch the market. Let is expire. It's not going to impact anything. And big oil will still find away to increase the price of fuel because of it. The American people are hosed either way.

t brandt
8/1/2010 8:10:56 PM

While I like to see our farmers benefitting, they've only gained about $0.25 per bushel due to EtOH production, with a bushel of corn selling for under $4 these days. We do have an impending economic crisis coming as petroleum supplies deplete over the next 20 yrs, but consider this: if the entire US corn crop were turned to EtOH for fuel, it would save only about 2% of the world's use of auto fuel per year. We can save 5% by just keeping our tires properly inflated. Subsidies for EtOH & other "alternative energies" are a boondoggle benefitting only those with good lobbyists in Congress. Let's throw all the bums out.

7/30/2010 7:23:23 AM

Good riddance. I have no idea why the taxpayers should have their hard-earned money stolen and given to Archer-Daniels-Midland all for the benefit of having inferior fuel that damages older vehicles all while reducing food crop yields and starving people around the world. It's time to vote out all the corporatists!



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