Last Call for Ethanol--Taxpayers for Common Sense

Last Call for Ethanol


Volume XV No. 28: July 16, 2010

Like a sailor on a late night bender, corn ethanol boosters are belly up to the bar trying to cajole another drink from the subsidy tap before the lights come on. Some in Congress seem all too ready to give in, costing taxpayers billions in the process. But in light of the yawning budget deficit and the failed promise, ethanol should be forced to make its own way in the marketplace.

Like alchemy of old, the idea of turning corn into fuel is an attractive one - a renewable, domestic, more efficient fuel. So for years Congress has lavished a tax credit, import tariff on foreign ethanol, usage mandate, and other subsidies in an effort to give the industry a leg up. But these efforts have yielded as much success as the alchemist had turning lead into gold. And according to a new Congressional Budget Office report, corn ethanol costs taxpayers $1.78 to reduce gasoline consumption by one gallon.

To promote the use of ethanol, we give fuel blenders (generally the big oil companies) a 45 cents per gallon tax credit. That costs more than $5 billion per year. But the Volumetric Ethanol Excise Tax Credit (VEETC) expires at the end of the year, and the industry is scrambling to keep the subsidies flowing.

The Renewable Fuels Association and their allies are trying to get something – anything – in place. The tax writers in the House are considering a proposal to extend the tax credit for another year, but at a lower rate – 36 cents per gallon. That would still cost $3.8 billion. And under budget rules, Congress would have to find offsetting spending cuts or revenue increases to pay for the extension.

Just this week another ethanol enabler, Growth Energy, rolled out a plan to end the subsidies. Well, not really. Sure, they called for phasing out the tax credit – so far so good – but then replace it with infrastructure subsidies so that ethanol could compete in a "fair and open market." Apparently the irony was lost on them. Instead of tax credits, Growth Energy wants money to pay for pumps at gas stations and pipeline infrastructure. Oh, and a mandate that all vehicles sold in the U.S. be flex-fuel.

Let's not forget, VEETC isn't the only subsidy the ethanol industry is bingeing on. There is a renewable fuels mandate to use biofuels, predominantly corn ethanol. The Government Accountability Office has pointed out that this mandate, which will go up to 15 billion gallons by 2015, is the primary driver of ethanol production. So why should we just give billions in tax credits to oil companies to use something they were going to use anyway?

After more than 30 years of subsidies, it's well past time for the ethanol industry to grow up and stand on its own. In light of our current fiscal situation, we cannot afford to keep picking up the tab. So rather than handing the subsidy-addicted ethanol industry another last swig, Congress should show them the door and let the credit expire at the end of the year. Then taxpayers will have something to toast.

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