• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • Big Corn Going on Offense

    Ethanol subsidies that are set to expire at the end of this year continue to lose support among the public and in Congress. King Corn, understandably not too happy about this change in public attitude, has launched an extensive lobbying campaign targeting Capitol Hill and beyond.

    The Corn Farmers Coalition has launched a visible ad campaign in Washington, in addition to revamping its lobbying efforts on Capitol Hill. Featuring the faces of happy corn-growing families carrying messages of the industry’s progress on billboards all throughout the D.C. metro system, the ads silently neglect mentioning that the share of farmers owning ethanol plants has dwindled from 40 percent in the early 2000s to merely 16 percent today, while corn production for ethanol has increased to 35 percent. Understandably, featuring the logos of its biggest corporate backers benefiting from U.S. ethanol fuel blend support wouldn’t sell as well.

    It is policies like ethanol subsidies that prevent America from reaching its full economic potential by diverting taxpayer money to selecting economic winners among favored industries. Ethanol subsidies are part of the bad policies included in the annual tax extenders package, which, according to Heritage expert Curtis Dubay, presents

    a yearly occasion for Congress to raise taxes under the guise of faux fiscal discipline. [Instead,] Congress should make all the provisions in the tax extenders that are good policy permanent and allow the ones that are not to expire. It should then cut other taxes to make sure the reforms are revenue-neutral. If it takes these steps, Congress will have one less way to raise taxes and sneak through this kind of irresponsible spending increase in the future.

    Unlike the recent attack on supposed oil subsidies, which was an attempt to subject the oil industry to targeted tax hikes, the ethanol subsidy is a true subsidy because it’s a specific handout to ethanol blenders. Fortunately, the previously favorable environment for ethanol fuel blend support seems to be changing.

    Tim Pawlenty announced his 2012 presidential run by boldly arguing against ethanol and other industry subsidies in Des Moines Iowa, stating, “We need to phase out subsidies across all sources of energy and all industries, including ethanol.”

    As recently as November 2010, even Al Gore stated that he had withdrawn his affection for the taxpayer-backed ethanol support despite his “certain fondness for the farmers in the state of Iowa” during his run for President. And yet Pawlenty appears far from committing the political suicide that his position on ethanol may have meant at any other time. The Des Moines Register reports that even some key industry ethanol groups are in support of a gradual phase-out.

    That’s not good news, though. For the ethanol industry to voluntarily submit to a gradual phase-out signals that danger lurks. If Congress takes no further action, the direct ethanol subsidy of 45 cents to the gallon is scheduled to expire at the end of this year. The subsidy was scheduled to expire last year, but President Obama and Congress extended it for another year in the 2010 tax bill.

    A gradual phase-out would mean that policymakers negotiate an extension of ethanol subsidies, even if at a lower rate. The danger lies in the phase-out period continuing indefinitely, as ethanol industry groups return to Congress year after year, in the same way as they do now, to argue that it’s merely too early this time to wean the industry off of taxpayer support.

    The other maneuver the corn lobby is pushing is to direct the subsidy away from fuel blending to supporting infrastructure. Proponents of ethanol subsidies want to redirect the tax credit to blender pump and pipeline installation. If Congress funds infrastructure subsidies, it will be even more difficult to get rid of ethanol subsidies in the future no matter how uneconomical ethanol is, because Congress cannot ignore sunk costs and will continue to sink money into a bad investment for years to come.

    Congress should not fall for any cry of the corn sirens who may argue that a slow phase-out of ethanol subsidies is necessary, especially given high gas prices. Ethanol would still benefit from equally onerous support in the form of consumption mandates and import tariffs, even absent the direct taxpayer subsidy.

    Ethanol made in America is shielded from foreign competition by a 54 cent per gallon tariff, and the government also mandates that Americans consume an increasing share of ethanol as fuel, this mandate rising to 36 billion gallons of ethanol by 2022. Demand for ethanol, however artificially created, is strong, even without the $6 billion in handouts the industry is set to receive yet again this year.

    Congress should bury the ethanol subsidy once and for all by letting it expire as scheduled on December 31. Furthermore, Congress should revisit the issue of ethanol mandates and protective tariffs and repeal both. As Nick Loris and Alison Acosta Fraser write:

    If biofuels are to succeed as a competitive fuel source, congressional legislation should not be necessary to mandate its production. Moreover, Congress should not force specific technologies on Americans, especially if they are unproven technologies. Instead, Congress should unleash the power of free enterprise, letting researchers and the markets discover the best new viable alternatives. Federal mandates limit choices and hinder free enterprise from finding the most efficient, cost-effective solution.

    Posted in Energy [slideshow_deploy]

    8 Responses to Big Corn Going on Offense

    1. P Bennett, AZ says:

      I have mixed emotions on the subject.

      First, from the Law of Unintended Consequences, the effect on other corn based products in our lives, as in the price increases on various foods, directly and indirectly, namely; livestock, dairy, and commodities from the diversion of corn initially, and presently as inadequate production.

      Second, the effect on gasoline costs, with the attendant reduction of ethanol supplementation used to placate the EPA. What new and not so wonderful ideas will be forthcoming?

      Third, the effect on the market prices for corn, being yet another hit the small, as opposed to corporate, farmers of the Midwest, must endure.

      I suppose, a gradual phase-out may be preferable. But which is really better; the gradual loss of hearing, for example, or it's sudden disappearance?

    2. Bobbie says:

      What you wrote is excellent and correct, Nick!

      One thing the President doesn't address is the high increasing costs of food being the result of high gas prices being the result of poor governing being the responsibility of his.

    3. George Colgrove, VA says:

      If we approve these subsidies, we will be doing so with NO MONEY!

      The fact "Big Corn" is even asking for money is abhorred with the national debt problem and the shortage of money we currently have and with the nation running up dangerous annual deficits. Public interest is waning because and legislation that provided the subsidies will be UNFUNDED!

      When we spend a dollar from deficit spending, we are saying that the program spending that dollar is unfunded and therefore should be reconsidered.

      57% of federal discretionary spending is unfunded.

      Let this subsidy go. The market may not like it, but it will adjust. Oh, BTW let us also remove the ethanol requirements for fuel blends. Then let us eliminate all federal programs relating to this work and all corresponding federal workers. If ethanol is such a great thing, then the market will continue to add it to fuel on their dime. Let the market decide the value of ethanol, not some stuffed shirts in DC.

    4. Pete, Houston Texas says:

      This subsidy needs to go as well as many others. The market will support industries that make sense and the ones that don't, need to go to their grave.

    5. George Fuller, Saras says:

      30% of the wheat acreage was converted to corn production……pushing up the price of wheat as well….and Russia had forbidden the export of wheat fueling worldwide cost increases and aiding the uprisings in the Middle East…

      Will Washington ever learn to stop meddling in free enterprise?

    6. mark lambert - Norma says:

      Your aticle is verty misleading as the Corn Farmers Coalition is a purely educational campaign that focuses on key USDA and EPa facts that discuss productivity, innovation,environmental advancements, and who farms the land. The ads you reference from "Big Corn" do not have a single reference to issues related to corn, and specifically ethanol. CFC is funded by individual family corn farmers from 14 states who have banded together to educate policy makers on who farms the land and how they do it today. Both good pieces of information to have when discussing and voting on agriculture and food policies that effect both growers and consumers. A better informed population regarding something as fundamental as our sustenance strikes me as a good thing so thanks Big Corn.

    7. Enchanting Ethanol ( says:

      So much corruption surrounding ethanol! Newt Gingrich has taken ethanol money. Gore supported ethanol when he was running for president and recently admitted his folly. B.Clinton who had money invested in an ethanol plant in Brazil that engaged in slave labor, recently rejected ethanol. Bush put the high levels of ethanol mandate in place. It goes on and on.

      The sad thing is it looks like this problem is going to continue with the new trend in reporting on ethanol. Finally, most news outlets are reporting that corn ethanol has problems— inefficiency, land use issues, waterway pollution, food security/inflation, etc. The new narrative is that cellulosic ethanol is the real answer and corn ethanol has been sucking up all the subsidies. If we just give cellulosic “the capital” we will have cheap “homegrown” energy for all.

      Cellulosic ethanol has received subsidies and has been unsuccessful. Look at Vinod khosla’s Range Fuels and Cello Energy. Range Fuels has gotten about 162 million in tax-payer dollars and about the same in private funding, but has not produced the cellulosic ethanol it promised. WSJ reported that the Range Fuels CEO says that no one has figured out how to produce commercially viable portions of cellulosic ethanol. And Cello Energy is bankrupt. (See WSJ 2/10/11 The Range Fuels Fiasco) (enchantingethanol.blogspot.com)

    8. Kent Misegades, Cary says:

      The author, and most others, miss the most important part of this topic. If subsidies end tomorrow, it will have no impact whatsoever on the production of corn-based ethanol. Gas companies are mandated to blend ethanol into gasoline under the RFS quotas found in the EISA 2007 Act passed by Bush/Pelosi/Reid. This is the same nanny-state law that dictates the use of mercury CFL bulbs. Ideally, the entire Act should be repealed, subsidies for ethanol ended, and free markets be allowed to determine if ethanol makes sense. I would not hold my breath. There is a widespread, grassroots effort by Americans underway to ban at least the use of ethanol in Premium gasoline. It is estimated that 650 million engines are being damaged now by the presence of ethanol. Read comments from thousands of signers of our petition:
      See also the coalition to preserve ethanol-free premium, http://www.e0pc.com

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.