Beam me to Planet Gore !
Posted on 12/08/2010 2:54:27 PM PST by Delacon
It’s high noon for ethanol subsidies and import tariffs, but not for the ethanol industry.
After more than three decades, the U.S. ethanol blenders’ tax credit and the ethanol-import tariff that was put in place to offset it are set to expire at the end of the year. The way things are looking, we may finally be rid of these indefensible and parochial market distortions. The ethanol tax credit alone costs taxpayers over $6 billion per year.
The expiration of these policies will have little, if any, impact on the U.S. ethanol industry, because the Renewable Fuel Standard requires Americans to consume an increasing amount of biofuels each year. The demand for ethanol will therefore not drop significantly even when the current tax credit (45 cents per gallon) and tariff (54 cents per gallon) expire. As a mandate, the standard acts as a built-in market for U.S. ethanol producers.
Still, Tea Party darlings Tom Coburn (R., Okla.) and Jim DeMint (R., S.C.) rightly began pushing the ethanol issue immediately after the election as a key test of whether congressional Republicans could get serious about fiscal discipline. Last week, a bipartisan group of 17 senators, led by the unlikely tandem of Dianne Feinstein (D., Calif.) and John Kyl (R., Ariz.), signed on to a letter calling for an end to ethanol price supports.
The letter was countered by a statement from Sens. Chuck Grassley (R., Iowa) and Kent Conrad (R., N.D) declaring that the U.S. would suffer catastrophic job losses and domestic ethanol production would plummet. Sen. Tom Harkin (D., Iowa) proclaimed, “They have to show me a valid economic reason why the 45 cents is not in the best interest of this country and our economy.”
This argument is exactly backwards: Harkin is unable to demonstrate that the tax credit does anything but subsidize domestic gasoline consumption and exports of ethanol.
Although tax credits by themselves encourage ethanol production, they drive down the cost of gasoline when a mandate controls the price of ethanol. A tax credit gives blenders the incentive to blend more gasoline than they would otherwise (and thereby derive more profits from the tax credit). This increases the supply, and thus decreases the price, of fuel. Because the ethanol market price is fixed by the mandate, when the fuel (ethanol plus gasoline) price has to decline, it does so in the form of lower gasoline prices.
Meanwhile, U.S. corn-ethanol production is at an all-time high of 38 million gallons a day (13.9 billion gallons a year), with exports exceeding even Brazil’s. Corn prices are near their record highs, and food-price-inflation concerns are rising. It is time for lawmakers to adjust to these new realities.
Redundancy and high costs are contributing to politicians’ reluctance to extend the tax credit — as is the growing uncertainty over the claimed environmental benefits and the bad publicity that accompanied the perception that biofuels were a primary culprit of the 2008 commodity price spike.
The waning public support in the U.S. for biofuel subsidies is taking many forms. A broad coalition of organizations, including value-added agricultural industries, environmental groups, and some in the oil industry, is lobbying strongly against extension of the tax credit and tariff. This in the face of divisions within the ethanol lobby, where some argue tax credits are no longer necessary while others propose a shift to a production tax credit, which would be paid to ethanol producers instead of fuel blenders.
If the economic rationale for the ethanol-import tariff is to offset the tax credit, then the tariff should expire along with the tax credit. Letting the tariff expire can provide more competition in the ethanol market and allow more environmentally friendly ethanol onto the market — such as Brazilian sugarcane ethanol. The primary reason sugarcane ethanol is, by far, the world’s lowest-carbon-intensity biofuel produced on a commercial scale is that one obtains twice the amount of ethanol per land unit from sugarcane as from corn. Furthermore, sugarcane is not a staple food crop and, unlike corn, has only an indirect effect on food prices. It is better for Brazil to produce ethanol and the U.S. to produce corn.
Brazil ended subsidies for ethanol over ten years ago and eliminated its ethanol tariff early this year. The U.S. should reciprocate. As the world’s top producers of ethanol, the U.S. and Brazil should collaborate in building an open and global biofuels marketplace for clean, renewable energy.
The best thing President Obama and Congress could do for ethanol policy this year is nothing — let the tax credit and tariff expire.
— Harry de Gorter is a professor at Cornell University and a visiting fellow at the Cato Institute, where Jerry Taylor is a senior fellow.
ping
bflr
How they can say this with a straight face is testament to the arrogance & stupidity of uber intellectuals.
Just get rid of the 10% corn crap gookin' up our gasoline & everything will be fine!
Can't buy clear gas in the Denver Metro Area anymore (year round) because of the subsidies even though stations are only required to carry it four months out of the year. Last station stopped selling it a year ago because the owner couldn't compete. E10 is cheaper — guess why.
Sorry, meant to ping you to my last.
De-fund monitoring and enforcement. End of problem.
What they've done is actionable on many levels(i.e. stealing our money to help corn whores, ruining our machinery with crappy product, etc.).
In the meantime, try additives, anything you can get your hand on, experiment.
I try to supplement every tankful & have found it very useful.
The Lucas product are good albeit pricey, so I'm more inclined to experiment with Big Lot's product, etc..
This article doesn’t go far enough. It calls for ending the tariff and the subsidy but doesn’t call for ending the mandate(the requirement that ethanol be added to gasoline). Yep, end the mandate or defund its enforcement.
If we lost some politicians from corn growing states, it would be worth it.
domestic ethanol production would plummet
We need to produce less of the things that waste our tax dollars, like ethanol, Dems and RINOs. And more of our own oil.
“...end to ethanol price supports.”
So, let me get this straight. The fuel suppliers are FORCED to mix gasoline with 10% ethanol, which is subsidized, and now the subsidy is going to be removed?
Gee, what will that do to gas prices at the pump?
What kind of additive? The problem for me is the low evaporation temperature of the ethanol.
And there is the rust factor caused by ethanol.
How much gas and diesel is wasted every year to make all this energy poor, economically undesirable fuel?
Perhaps a big push is in order. First the subsidy, then the whole industry. Perhaps they can repeal the sin tax on Ethanol to make up for the loss of subsidy. It would make next year more bearable anyway.
“So, let me get this straight. The fuel suppliers are FORCED to mix gasoline with 10% ethanol, which is subsidized, and now the subsidy is going to be removed?
Gee, what will that do to gas prices at the pump”?
Reasonable question. The article calls for ending the tariff on foreign sugar ethanol(57 cents per gallon). That alone will drive the cost of ethanol gas down to or less that what it is now with the subsidy. But yes, ending the mandate to add ethanol as well as the subsidy and the tariff would be the best move.
It's really not to pricey if you buy the gallon bottle, I just got tired of dosing out a few oz. at a time.
For awhile I had one of those plastic lab type bottle you squeeze to dispense a bit at a time, but I left it on a pump somewhere.
So lately I've been buying a similar but cheaper version from Big Lot's because it comes in a 16 oz. easy to handle bottle (plus it's $2) which I just slurp a little in each tank before fill-up.
Cool. I have been using diesel. What is the Lucas stuff made of. Sounds British.
Lets get America back to doing with ethanol what it does best. Turn it into whiskey. I say get them to remove all taxes on booze. Will certainly make next year bearable. ;)
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