Commentary: Torching ethanol’s subsidies

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You knew this was coming. Again.

In a political climate marked by virulent opposition to “business as usual” when it comes to the federal budget, the ethanol program was ripe for the cutting.

So it’s no surprise that this week Sens. Tom Coburn, (R-Okla.) and Dianne Feinstein (D-Calif.) have re-introduced the Ethanol Subsidy and Tariff Repeal Act, which would eliminate the Volumetric Ethanol Excise Tax Credit (VEETC) by July 1 and repeal the import tariff on foreign ethanol. The list of bipartisan cosponsors for the bill includes Sens. Ben Cardin (D-Md.), Richard Burr (R-N.C.), Jim Webb (D-Va.), Susan Collins (R-Maine) and James Risch (R-Idaho).

Coburn and Cardin introduced a similar bill in March, but it was blocked by several farm state senators. The new bill also adds provisions for repealing the tariff currently levied on imported ethanol.

“The ethanol subsidy and tariff is bad economic policy, bad energy policy and bad environmental policy,” Coburn stated. “As our nation faces a crushing debt burden, rising gas prices and the prospect of serious inflation, continuing our parochial ethanol policy that increases the cost of energy and food is irresponsible.”

“Ethanol is the only industry that benefits from a triple crown of government intervention: its use is mandated by law, it is protected by tariffs and companies are paid by the federal government to use it,” Feinstein added in a statement. “Ethanol subsidies and tariffs sap our budget, they’re bad for the environment and they increase our dependence on foreign oil.”

Currently, the VEETC funnels 45 cents to refiners for every gallon of ethanol blended with gasoline, at an annual cost of approximately $6 billion a year.The ethanol tariff is comprised of a 54 cent-a-gallon duty and a 2.5% tax, which critics claim makes the United States more dependent on foreign oil by increasing the price of imported ethanol.

And the critics are legion.

Nearly 40 organizations on the left and right, including the refiners who benefit from the VEETC subsidy, have called for the elimination of the subsidy, including key groups opposed for varying treasons:

  • The food industry. A group of more than a dozen leading trade groups representing producers, processors and food marketers, including the American Bakers Association, the American Meat Institute California Dairies, the Grocery Manufacturers Association, the Milk Producers Council, International Dairy Foods Association, the National Meat Association and the Snack Food Association. “We strongly support your legislation, [which] if enacted immediately, would save taxpayers nearly $4 billion over the remainder of 2011,” the groups wrote in a letter to Sen. Coburn back in March.
  • The environmental community. From high-profile eco-activists like the Sierra Club to politically connected groups such as the World Wildlife Fund and Friends of the Earth to industry-supported groups such as the Clean Air Task Force, a broad and very visible coalition of environmental groups have been loudly cheerleading the move to get rid of ethanol subsidies.
  • The NGOs. From the Competitive Enterprise Institute to Americans for Limited Government to PLANT (Partners for the Land & AgriculturalNeeds of Traditional Peoples), a cross-section of non-profits with varying agendas have coalesced on this singular issue: Kill the ethanol subsidies.

Even non-partisan government agencies, such as the Congressional Budget Office and the GovernmentAccountability Office, have concluded that maintaining the ethanol subsidy is unnecessary.A recentIowa State University study from the Center for Agricultural and Rural Development estimated that a one-year extension of the $6 billionethanol subsidy and tariff would create less than 500 direct domestic jobs, which comes toabout $14 million per job.

So what’s the prognosis for the ethanol program? Coburn is attacking the subsidies on the basis of the perceived need to embark upon unprecedented federal cost-cutting, and eliminating spending on ethanol is but one of several proposals he’s championed as part of his plans to slash federal spending. Agree or disagree, there is significant momentum in Congress to seek and destroy programs that can be deemed unnecessary or painted benefitting only a narrow constituency, and on that basis, ethanol certainly qualifies.

Feinstein, meanwhile, is addressing record high gasoline prices in her home state of California, for which the tariff on imported ethanol can be partly blamed. Plus, with the diversion of corn from food to fuel tagged as the culpritin the rising cost of groceries, her constituents are receptive to anything that can be characterized as a move to control food costs.

Thus, the Coburn-Feinstein bill might well muster enough support to get pushed through Congress, especially as a substitute for other, more painful program reductions Members will be less likely to endorse.

The sad fact is that eliminating the ethanol subsidies and tariffs will provide some short-term satisfaction for the budget hawks in Washington. But its elimination won’t balance the budget, won’t lower gas prices, won’t stop food price inflation, won’t protect the environment and won’t do a damn thing to deal with America’s ongoing energy crisis.

Forking over billions to prop up an energy-inefficient ethanol program isn’t a long-term solution to any of our national challenges regarding energy, food security or the federal deficit.

But getting rid of the program won’t make things any better, either.

Dan Murphy is a veteran food-industry journalist and commentator

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Kevin Lickteig    
Kansas  |  May, 05, 2011 at 12:18 PM

As a veteran food industry guy, you got one thing right, it won't make any thing better. To correct, the US has been exporting ethanol, due to something you should know, sugar prices. Gasoline is over $1.40 a gallon higher than rack ethanol, mixing 10% cheapens the cost, plus oxygenates it, but you do not understand science, so I won't go there. Finally cut all subsidies, oil, ethanol, defense, and sugar etc., that would keep it level and may create a dent.

Chicago  |  May, 05, 2011 at 01:51 PM

What would really make an immediate end to subsidies and high food prices would be a suspension if not total elimination of the Ethanol and Biodiesel mandates. If the industry was not "forced" to use this junk nobody would buy it and no subsidies or tariffs would matter.

Jonathan Lewis    
Boston  |  May, 06, 2011 at 10:01 AM

While this article gets much of the story right, it wrongly describes the Clean Air Task Force (CATF) as an “industry-supported group.” CATF is entirely supported by philanthropic foundations and individuals; it does not, and never has, accepted corporate or government funding. The confusion on this point may stem from the work CATF is doing alongside a number of companies – from meat producers to restaurant groups to engine makers – that share our concerns about the raft of policies that promote biofuels in this country. These policies contribute to our budget deficit, rising food prices, soil and water degradation, and global warming. Accordingly, it shouldn’t come as any surprise that environmental groups like CATF are teaming with hunger organizations, taxpayer groups, and a wide range of affected companies to push for a less costly, more rational approach to biofuels.

John McGrew    
Glenns Ferry, Id  |  May, 19, 2011 at 02:55 PM

"won't make things any better?" yes it will, just a little.

Ocean City, MD  |  May, 21, 2011 at 07:03 AM

Subsidized ethanol is consuming 33% of (domestic) corn, a food commodity; therefore, the reduction of producing this boondoggle certainly would lower grain prices worldwide. Lower grain pricing effects all meats, baked goods, not to mention saves millions of small engines. The subsidies have increased corn's share of limited farmland forcing a reduction of other crops inflating their prices. All this without benefiting the carbon foot print nor reducing our oil dependency. If we took every bushel of corn for fuel, it would produce only 4% of our total VTM (veicle travel miles).

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