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  • Coburn Moves to Eliminate Ethanol Subsidies

    Ethanol. Henry Ford called it the “fuel of the future” in the 1920s. Decades later, policymakers put laws in place to increase the amount of ethanol in our fuel supply. Environmentalists and the Midwest sold it as a way to decrease American dependence on foreign oil and a way to reduce greenhouse gas emissions. But it’s accomplished neither and instead become an industry reliant on subsidies, mandates and protectionism. Washington needs to reverse these policies and Senator Coburn’s (R-OK) amendment to repeal the Volumetric Ethanol Excise Tax Credit (VEETC) is a good first step, but it should be coupled with offsetting rate reductions elsewhere.

    The VEETC is a 45-cent blender’s credit that doles out $5-6 billion a year for petroleum refiners to blend ethanol into gasoline. Although some claim this is another handout for oil companies, the credit will be passed up the line to the ethanol producers and corn growers, or as the Wall Street Journal says, ethanol producers “can charge some 45 cents a gallon more than the market would otherwise bear.”

    According to the supporters, the production of corn ethanol has caused rural employment to increase. It has, in the ten Midwestern states where most ethanol production occurs, but not in the other 40 states. Supporters of ethanol claim the loss of ethanol production will impact the economy negatively – through job loss particularly. However, “expected job loss is minimal because jobs in the ethanol industry are protected by the Renewable Fuels Standard.” In other words, because law requires production of 36 billion gallons of ethanol by 2022, the guaranteed share of the marketplace guarantees jobs. Even so, saving jobs isn’t a good reason to keep bad policy in place. If jobs related to ethanol production cannot survive without the government’s crutch, they should be reallocated to more efficient use. Broad economic growth creates jobs, not government policies that subsidize jobs and production at the expense of jobs and production elsewhere in the economy.

    When you take into account the production mandate, there’s very little bang for the subsidized buck. Because there’s a production quota, the value of the blender’s tax credit is what additional ethanol will be produced with that money. A University of Missouri analysis pegs the cost at $4 per gallon for each additional gallon of ethanol produced as a result of VEETC. As the mandate ratchets up, your taxpayer dollar doesn’t even go that far. An Iowa State University study estimates that the VEETC will cost $7 per gallon of ethanol this year that if Congress continues to extend the VEETC, it will cost $30.40 per gallon.

    To make matters worse, that’s not the end of the preferential treatment ethanol producers enjoy. We can’t even buy ethanol competitively. We could be importing Brazilian sugarcane ethanol, a fuel source that is less susceptible to crop disruption such as in the Midwest and is more environmentally friendly. Yet, there is a protective tariff against Brazilian sugarcane ethanol that eliminates a competitive market.

    Then there’s the fact that corn ethanol actually produces a greater harm to the environment just from being created. “CO2-emitting fossil fuels are used to make fertilizer, operate farm equipment, power ethanol distilleries, and transport the ethanol to market.” On top of the damages from production there are the damages from the creation of production. In order to grow corn farmers must plow more land, the more land plowed not only means less area for trees but can also “release carbon previously locked up in soils and trees.”

    Congress should get rid of all of three of these market-distorting policies. Senator Coburn’s amendment to eliminate the VEETC and consequently $6 billion in wasteful spending is a good place to start, but it should be offset with a broad tax cut to avoid any net tax increase.

    Although it may be a catchy sound bite, America is not addicted to oil. As the Competitive Enterprise Institute’s Marlo Lewis says, “consumers will stop buying gasoline the moment a superior product comes along.” Ethanol and other biofuels may eventually be that superior product.  Electric vehicles could as well. But it’s not the role for the government to force these sources of fuel and technologies into the marketplace.

    In a free market, fuel producers and users should be allowed to make their own fuel decisions without federal bureaucrats and powerful special interests deciding that for them.

    Sarah Murphy contributed to this post.

    Posted in Energy [slideshow_deploy]

    18 Responses to Coburn Moves to Eliminate Ethanol Subsidies

    1. George Colgrove VA says:

      It would be nice to get this stuff out of our gas as well.

      - creates varnish in the engine cylinders

      - make for more pollution at slower speeds (i.e. city driving)

      - kills performance

    2. West Texan says:

      Corn based ethanol keeps me going. Especially after aging in charred oak barrels. If DC bureaucrats want to subsidize ethanol production, let them do so with Kentucky. Taxpayers would certainly enjoy more bang for their buck.

    3. Rodney Tatro Las Veg says:

      My thoughts on ethanol it's a ridiculous energy source. Natural gas should be the fuel of the future. Platforming the hydrogen economy,

    4. Fred from Florida says:

      First off, it's funny how the ethanol supporters don't seem to care about the thousands, if not millions, of jobs that will be lost by dumping the oil industry for ethanol. In fact, ethanol mandates have already cost jobs in other energy industries. So for the ethanol lobby to defend keeping ethanol mandates sorely because it will keep "jobs" (bureaucrat busywork is more accurate than the term jobs) is hypocritical. Not to mention stupid, should we allow Mafia hitmen and smugglers to exist now? After all, those are jobs too.

      Second, ethanol/biofuels will never replace gasoline/oil. It's inherently inefficient, inherently expensive, too time/cost consuming and has too many flaws to ever be more than a niche energy market, if that. Plus biofuels drive up food costs.

      Third, as for sugarcane, it may be better than corn ethanol, but it too is inefficient and inferior to gasoline. Also, it requires the clearing away of a lot of land, is environmentally messy, and causes diseased lungs among its workers.

      Also, Brazil is not the U.S. Brazilians has a lot less cars and people who have them drive them much less and at much shorter distances. Sugercane would simply not work here.

      Oh, and Brazil is *still* in the Top Ten of oil consumption anyway.

    5. Stirling, Pennsylvan says:

      Ethanol is a joke as a fuel source. It take away from our country and the worlds food sources, which in turn drives the worlds food prices thru the roof. And even the enviromentalists are now stating it has adverse affects on the enviroment. Every time you visit your local grocery store and are upset at what you pay just thank the administration and ethanol producers for picking your pockets.

    6. Luke, Ames says:

      In a blog post this afternoon, the Renewable Fuels Association (RFA) noted that the arguments that the editorial and the senator make regarding ethanol "come with huge blind spots."

      Specifically, "[a]s usual, the Journal fails to tell its readers some very important points. For example, most of the companies eligible for the tax incentive are small businesses like independent gasoline marketers that actually sell gasoline, not the world's largest oil companies. Nor does the Journal mention that the tax incentive alone actually lowers the price of gasoline for American drivers by a nickel for each gallon of 10% ethanol blends they buy. Senator Coburn also fails to grasp this concept. He routinely proffers the notion that ethanol is driving up the price of gasoline, along with erroneously suggesting ethanol is the driver behind food price increases.

      In private, my guess is Senator Coburn blames ethanol for the disappearance of Amelia Earhart too, but that is pure speculation," RFA noted in its blog.

      RFA also noted that the oil industry receives nearly $18 billion in direct annual support from taxpayers. "By comparison, the ethanol tax incentive is a molehill," the group wrote.

      "Since the beginning of the year, the Journal's editorial page has written no fewer than seven anti-ethanol diatribes, not including the disparaging submissions from outside sources. Senator Coburn, for his part, has made countless speeches and given a plethora of interviews castigating American ethanol production. Neither have bothered to discuss the billions still provided to oil companies or the tax loopholes that allow highly profitable companies to avoid paying taxes," RFA's blog continued.

      "Tackling energy challenges and addressing shortcomings in the American energy tax policy require honest and comprehensive discussions. American ethanol producers are ready to have such discussions. The ethanol industry is actively engaged in good faith discussions with lawmakers and other stakeholders to transition and transform current ethanol policies to address budget concerns. … When the Wall Street Journal and Senator Coburn are ready to talk seriously about energy tax reform, our door is open," the blog concluded.

    7. Luke, Ames says:

      Hey Stirling,

      I have a 5cent piece – I'll sell it to you for $200 dollars! Ethanol is taking food from your mouth and raising the cost of the food? It is so funny to see the little people try and talk like it is fact, when it is just them repeating what someone was paid to say to benefit there own "wants"… Everything to do with food is drivin by two things – Price of Oil and Weather…

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    9. Pingback: Coburn Moves to Eliminate Ethanol Subsidies – Heritage.org (blog)

    10. Roger S., Mass. says:

      Actually, government needs to get out of the business of "gaming the markets". That goes for all markets, but especially for the energy market, which is the most basic of all. As for the rest, and on a lighter note, I'm with "West Texan": Cut all the subsidies, and give all of us the benefit of our "daily drinking allowance", aka as a free shot of Jack Daniels or Jim Beam, or what have you for all those who can prove that their daily trip to/from work is accomplished by roller skates, bicycle, or plain old shoe leather. Environmentally, at least that would make sense! Or would it?

    11. George Colgrove VA says:

      Luke,

      When you take a bunch of corn out of the food supply and convert it to fuel this is what happens.

      If you never heard of supply and demand here is a quick lesson.

      A supply – demand chart shows two curves (actually straight lines) that form an 'X'

      The horizontal axis is a unit of supply and demand (usually a quantity measure)

      The vertical axis is a unit of cost/price.

      The supply curve shows a high price when the supply unit is low, and low when the supply unit is high.

      The demand curve shows a low price when the demand unit is low and high when the demand unit is high.

      The optimum price and supply is where the two lines cross.

      If you artificially take away a large portion of corn supply to use for fuel, the supply used for eating goes down. Demand stays the same and because supply goes down the price goes up.

      This is economics. The price of goods has to do with Weather and oil, but these are small factors as these are already are factored into the price of the good. When supply goes down of any particular commodity, the price can seriously be impacted – which is what happened with corn.

      Liberals do not understand economics and for the last 8 years this government has been run by liberals. Libs want to tax people who provide employment – why 'cause they have money. That is their simple and damaging logic. Liberal economics is blame failure on your oponent if the economics do not go well and take credit for good things your oponents put into place.

      They tax and spend utill it all breaks, then blame George Bush.

      We are in too far a dangerous position to let these numskulls continue to set policy.

    12. Pingback: Time to cut corn ethanol subsidies – Carroll County Times

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    14. Stirling, Pennsylvan says:

      Well put George, economics 101 is a weakness of the left (like Luke.) Luke I would also guess that a commodity like Gold and Silver by your definition is due to "Oil and Weather" as well. I would buy Gold and Silver before Ethanol personally when your 5Cents becomes worth nothing in Dollars.

    15. Paul, Rochester says:

      Ethanol is only responsible in part for the rise of grain prices. Severe weather in Russia, Austrailia, and Parts of the U.S diminished production at the same time that countries like china and India increased demand.

      Additionally ethanol does not detract from the food supply as much as many claim. a bushel of corn weighs 56 lbs. After it is processed for ethanol about 36 lbs is left over in the form of distillers grains. This distillers grains is then fed to livestock just like the original corn would have been fed to livestock. So over half of the corn used for ethanol still enters the food chain, it just takes a different route.

      The viability of ethanol as a fuel source is another matter. Ethanol producuction has a energy ROI of 1.2 – 1.3 to 1. Or 1,000,000 BTU's of petroleum equivalent invested in ethanol production (including fuel for fertilizers, transport, drying, et cetera) returns about 1,200,000 – 1,300,000 BTU's of petroleum equivalant. That said ethanol still cannot be a end all replacement for gasoline because we simply cannot produce enough of it.

      Food and energy are connected to one another however ethanol, despite all the press it receives, is only masking the real prorblems posed by peak oil, an energy intensive agriculture, weather, population growth and a leveling of the worlds economies that has resulted in increased demand for food stuffs which require more energy input.

    16. Bobbie says:

      Wow! We'll get afford to eat corn again!!!!!!!

    17. Pingback: Democrats Play Chicken With Government Shutdown + More « PA Pundits – International

    18. Pingback: Idaho senators working with GOP on ending ethanol tax break « IdahoReporter.com

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