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Time To End Irresponsible Ethanol Subsidies

by 5m Editor
27 April 2011, at 8:14am

US - If the cattle industry received the same government support as the ethanol industry, ranchers would get generous subsidies to raise their stock, the American public would be mandated to consume certain amounts of beef and most foreign cattle would carry punitive import tariffs. Of course, this is not the case, writes US Senator Dianne Feinstein (California).

Ethanol is the only industry that benefits from such a triple crown of government intervention: its use is mandated by law, oil companies are paid by the federal government to use it and it is protected by tariffs. I believe it is time to end this outdated policy that is fiscally irresponsible, environmentally unwise and makes our country more dependent on foreign oil.

Last month, I introduced legislation to repeal the 45-cent-per-gallon corn ethanol subsidies and reduce the ethanol tariff. My bill would eliminate a subsidy that costs taxpayers nearly $6 billion a year while continuing to support producers of non-corn, second-generation “advanced biofuels“ that are more environmentally friendly and non-market distorting.

The practice of subsidising the blending of corn ethanol into gasoline is fiscally indefensible. If this policy were to remain in place, the US. Treasury would pay oil companies at least $31 billion to use 69 billion gallons of corn ethanol over the next five years, even though the Federal Renewable Fuels Standard already requires those companies to use ethanol.

It makes no sense, and we cannot afford to pay the oil industry to obey the law. Plus, large oil companies certainly don’t need more financial help from taxpayers. The cattle industry and other animal agriculture industries are disadvantaged in this equation. It is increasingly more expensive for ranchers to buy feed, largely because they directly compete with ethanol producers for corn.

In 2000, approximately seven per cent of the US corn crop was used to produce ethanol. By 2010, that number had risen to 39 per cent. And it will continue to rise until we shift from corn ethanol to advanced biofuels that lower pollution and do not distort markets for food and feed.

Another flaw with current policy: Ethanol tariffs make our country more dependent on foreign oil. The tariffs are more than 14-cents-per-gallon higher than the ethanol subsidy they supposedly offset. This lack of parity means imported ethanol suffers a competitive disadvantage against imported oil. By leveling the playing field between imported oil and imported low-carbon ethanol, my bill would diversify our fuel supply, replace oil imports from OPEC countries with low carbon sugarcane ethanol from Brazil, India and Australia and expand our trade relationships with democratic states. The costs of ethanol subsidies and tariffs far outweigh the benefits.

The Centre for Agricultural and Rural Development at Iowa State University recently estimated that a one-year extension of the ethanol subsidy and tariff would lead to only 427 additional direct domestic jobs at a cost of almost $6 billion, or roughly $14 million of taxpayer money per job. According to a July 2010 study by the Congressional Budget Office, ethanol tax credits cost taxpayers $1.78 for each gallon of gasoline consumption reduced, and $750 for each metric ton of carbon dioxide equivalent emissions reduced.

Developing and growing clean energy sectors are important goals, but we must do so responsibly. Eliminating the corn ethanol subsidy, lowering import tariffs and supporting non-corn ethanol are all steps that move us in the right direction.

5m Editor