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Ethanol: A Corny Trade Policy

Posted By Aaron Walling On May 10, 2011 @ 3:01 pm In Energy | Comments Disabled

Gas prices are on the rise again. The national average is now just under $4.00 [1] a gallon, and it’s sure to rise as the summer driving season rolls near. The pesky detail not often mentioned is that our ethanol policy is a contributing factor toward these higher fuel prices.

The United States is the world’s largest producer of ethanol, with Brazil a close second. However, Brazil’s sugar-based ethanol is cheaper, more efficient, and cleaner burning [2] than our corn-based product. Yet special interests have managed a rather sweet deal for our domestic producers.

In 2005, under the Energy Policy Act, Congress imposed the Renewable Fuel Standard [3], which mandated that 7.5 billion gallons of renewable fuel must be blended with the gasoline supply. If the original intent of this mandate, which has since been expanded, was to reduce fuel emissions, then we are hamstringing that effort—and unnecessarily harming U.S. consumers in the process.

Since 1980, there has been a tariff—currently 54 cents per gallon—on imported ethanol. That means Congress’s attempt at going “green” has resulted in another instance of the government embezzling more green from our wallets. By imposing this tariff on cheaper foreign sources (mainly Brazil), Congress has artificially raised the price that we are all forced to pay and has steered the market away from a more efficient, cleaner source of fuel.

While average Americans continue to feel the pain at the pump, the Obama Administration has remained remarkably silent on the issue. Fortunately, though, there may be hope on the horizon. Last week, a bipartisan group of Senators introduced the Ethanol Subsidy and Tariff Repeal Act [4].

The bill would fully eliminate the import tariff on ethanol and repeal the Volumetric Ethanol Excise Tax Credit. This would grant U.S. blenders cheaper inputs, which in effect lowers productions costs and, subsequently, prices.

Congress should move toward ending this outdated tariff and let the free market work.

History, along with Heritage’s Index of Economic Freedom [5], shows that countries with stricter trade barriers and protectionist policies only hurt their economies in the end. It’s time we stopped hurting ours.

Aaron Walling is currently a member of the Young Leaders Program at the Heritage Foundation. Click here for more information on interning at Heritage. [6]


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2011/05/10/ethanol-a-corny-trade-policy/

URLs in this post:

[1] $4.00: http://www.eia.doe.gov/oil_gas/petroleum/data_publications/wrgp/mogas_home_page.html

[2] cleaner burning: http://siteresources.worldbank.org/INTWDR2008/Resources/2795087-1192112387976/WDR08_05_Focus_B.pdf

[3] Renewable Fuel Standard: http://www.epa.gov/otaq/fuels/renewablefuels/index.htm

[4] Ethanol Subsidy and Tariff Repeal Act: http://coburn.senate.gov/public/index.cfm/pressreleases?ContentRecord_id=d814a8d6-32bd-46d8-89bc-c61d65373f45

[5] Index of Economic Freedom: http://www.heritage.org/index

[6] Click here for more information on interning at Heritage.: http://www.heritage.org/about/departments/ylp.cfm

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