The Apostle of the Gospel of Environmentalism, Al Gore recently admitted he had made a serious mistake in promulgating government subsidies for ethanol. Ah, the costs inflicted and damage this man has done. It appears as though the passion for ethanol has cooled somewhat of late. It is possible that the US government might not renew its costly and distorting subsidies come the end of the year. (One consequence of this may be the bust of the dairy bubble, which has benefited from the artificially high corn prices due to artificial demand for corn arising from subsidized ethanol.)
An article in the New York Times tells the story. Ending the subsidy appears to have strong bi-partisan support. We will see.
End Ethanol Subsidies, Senators Say
By JOHN COLLINS RUDOLF
Bloomberg News
A farmer in Marshall, Mo., unloading harvested corn for ethanol production.
Subsidies and tariffs to promote domestic ethanol production are “fiscally irresponsible and environmentally unwise” and should be ended, a bipartisan group of United States senators declared in a letter to the chamber’s leaders on Tuesday.“Eliminating or reducing ethanol subsidies and trade barriers are important steps we can take to reduce the budget deficit, improve the environment, and lessen our reliance on imported oil,” the senators wrote to the Democratic majority leader, Senator Harry Reid, and the Republican minority leader, Senator Mitch McConnell.
The letter was circulated by Dianne Feinstein, Democrat of California, and John Kyl, Republican of Arizona. The 15 co-signers included John McCain of Arizona and Tom Coburn of Oklahoma, both Republicans; and Barbara Boxer of California and Jack Reed of Rhode Island, both Democrats.
Supporters of domestic ethanol call it a cleaner-burning fuel than gasoline that offsets oil imports from autocratic regimes abroad and creates American jobs. But the growing appetite of ethanol refiners for the American corn crop has steadily driven up the price of food worldwide, while increased demand for corn has caused an rise in fertilizer use and pesticide-intensive agriculture in the United States.
High tariffs on imported ethanol, meanwhile, artificially drive up the price of domestic ethanol, angering fiscal conservatives.
Earlier this week a coalition of advocacy groups from across the political spectrum issued their own call to end the ethanol subsidy for refiners. Their letter, to Congressional leaders in the House and Senate, was signed by Freedomworks, the Heartland Institute and other conservative groups as well as environmental organizations like the Sierra Club and the liberal activist group MoveOn.org.
Food and livestock industry groups have made their own calls to end ethanol subsidies, arguing that the policies have led to a rise in the price of feed and basic food commodities.
Federal policies currently provide for a tariff of 54 cents a gallon on ethanol imports and a subsidy of45 cents a gallon for blending ethanol into gasoline. Federal law mandates that oil companies use 12 billion gallons of renewable fuels such as ethanol in this year, rising to 15 billion gallons by 2015. As a result, Treasury will pay out at least $31 billion to refiners over the next five years if the blending subsidy is renewed.
The ethanol mandate will rise to 36 billion gallons per year by 2022. “We cannot afford to pay industry for following the law,” the senators wrote. The senators also argued that the tariff on imported ethanol, which is 9 cents a gallon higher than the subsidy it was intended to offset, made the country more dependent on foreign oil and was a waste of federal funds. Ethanol from Brazil and other sugar-producing countries is cheaper than domestic corn-based ethanol, but the high tariff discourages low-cost imports.
“This lack of parity puts imported ethanol at a competitive disadvantage against imported oil,” the letter states. ”Eliminating or reducing the ethanol tariff would diversify our fuel supply, replace oil imports from OPEC countries with ethanol from our allies, and expand our trade relationships with democratic states.”
Supporters of expanded domestic ethanol production sharply disputed the senators’ claims, warning that cutting off the subsidies and ending the tariff would put thousands of Americans out of work and devastate the domestic ethanol industry.
“Calling for the elimination of investment in domestic ethanol production may seem pennywise, but is extraordinarily pound foolish,” the Renewable Fuels Association, a trade association, said in a statement.
Both the ethanol blending subsidy and the tariff on imported ethanol will expire at the end of the year without Congressional action. If they are allowed to lapse, re-enacting the policies may be difficult, given the more fiscally conservative nature of the incoming Congress.
“I think once it’s dead, it’s much harder to shock it back into life,” said Nathanael Greene, director of renewable energy policy at the National Resources Defense Council.
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