A-Maize-ing Waste: Why Ethanol Subsidies Must Be Repealed | Citizens Against Government Waste

A-Maize-ing Waste: Why Ethanol Subsidies Must Be Repealed

The WasteWatcher

“I once was lost but now am found; Was blind, but now I see” the amazing waste in the ethanol subsidy program, admitted Vice President Al Gore. A November 27, 2010, Wall Street Journal article confirmed that the ethanol cheerleader and environmental eminence of the climate change movement had backtracked on his support for the program, saying it was a “mistake,” and that he only supported it because he had a “certain fondness for the farmers in the state of Iowa” during his presidential run.

The Volumetric Ethanol Excise Tax Credit (VEETC) is a targeted tax benefit to blenders who already receive several federal incentives, including those from the Renewable Fuel Standard, which requires 36 billion gallons of ethanol to be blended into transportation fuel by 2022, and a $0.54 per gallon tariff on imported ethanol to encourage domestic production. In 2004, the government started offering tax credits worth $0.51 for each gallon of gasoline containing 10 percent ethanol. During the 2008 Farm Bill negotiations, that credit was lowered to $0.45 per gallon; it was renewed in December 2010. This massive $6 billion annual subsidy is set to expire at the end of 2011 but it won’t sunset without a fight.

For presidential candidates hoping to cozy up to Iowa caucus voters, nothing sounds sweeter than ethanol subsidies, which significantly benefit local corn growers. Former House Speaker Newt Gingrich (R-Ga.), a likely candidate in 2012, has been a vocal supporter of the ethanol subsidies, rebuking “big city attacks” against the industry before the Iowa Renewable Fuels Summit in January. Tim Pawlenty, another politician with an eye on the presidency, signed an increased ethanol mandate into law as governor of Minnesota. In fact, “King of Corn” Sen. Chuck Grassley (R-Iowa) noted that he hasn’t heard any of the White House contenders “badmouthing” ethanol subsidies yet.

However, many politicians and environmentalists who once supported ethanol subsidies have since changed their tunes, recognizing the damaging consequences of the program on both the nation’s economy and environment. Not only is this tax credit expensive and unnecessary, it has produced many unfavorable consequences including higher food prices, lower fuel efficiency, and increased incidences of engine damage in motor vehicles. Even Senator Dick Durbin (D-Ill.) who represents the nation’s second-largest corn-producing state, once said, “I’ve supported ethanol from the beginning, but we have to understand it’s had an impact on food prices. Even in the Corn Belt, we’d better be honest about it.” Additionally, the Environmental Protection Agency (EPA) has found that current ethanol production results in higher greenhouse gas (ghg) emissions than refining and burning ordinary oil, and many analysts point out that devoting more land to biofuel production will only further exacerbate the ghg dilemma.

Despite these negative effects, in October 2010 the EPA increased the amount of ethanol that can be blended with fuel from 10 percent to 15 percent. Coincidently, last year the ethanol industry was producing 13 billion gallons while the U.S. consumed only 138 billion gallons of gasoline, meaning that ethanol producers had almost hit their 10 percent “blending wall.” It appears that the EPA came to their rescue by increasing the blend ratio just in the nick of time.

Al Gore was right: “It’s hard once such a program is put in place to deal with the lobbies that keep it going.” Nevertheless, Congress must work toward repealing this wasteful, unfair and needless tax credit. While the House and Senate have agreed to earmark moratoriums for the 112th Congress, lawmakers should now be eliminating corporate welfare programs and repealing fiscally irresponsible targeted tax benefits. According to a March 2011 Government Accountability Office report, the VEETC is “largely unneeded today to ensure demand for domestic ethanol production” and “can be duplicative in stimulating domestic production and use of ethanol, and can result in substantial loss of revenue to the Treasury.”

Eliminating the VEETC would save taxpayers at least $6 billion annually. Senators Tom Coburn (R-Okla.) and Ben Cardin (D-Md.) recently introduced S. 520, the Volumetric Ethanol Excise Tax Credit (VEETC) Repeal Act, to eliminate the $0.45 per gallon subsidy to blenders of ethanol. The Council for Citizens Against Government Waste (CCAGW) applauds Senators Coburn and Cardin for taking the lead on this important legislation and encourages all lawmakers to support repealing the VEETC.

At a time when the nation’s debt has ballooned to more than $14.2 trillion, members of Congress should be looking for every viable way to cut wasteful and duplicative spending. Ethanol subsidies, which have proven to be damaging on multiple fronts and serve no one except the corn farmers and ethanol distillers, should be on the chopping block. If members of Congress and presidential contenders want to prove themselves to be true fiscal conservatives and responsible policymakers, they will support the full repeal of this subsidy.

-- Erica Gordon