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2011 August 07 Sunday
End Ethanol Subsidy To Save Few Billion Per Year

It has taken an insanely irresponsible level of federal deficit spending with deficits projected out for decades to get the US Senate to oppose a wasteful subsidy.

WASHINGTON, D.C.– A bipartisan group of 12 Senators, led by Senators Jim Webb (D-VA) and Tom Coburn (R-OK), today sent a letter to Majority Leader Harry Reid (D-NV) and Minority Leader Mitch McConnell (R-KY) urging them to make full elimination of costly ethanol subsidies and tariffs a priority. In June, a measure offered by Senator Dianne Feinstein (D-CA) and co-sponsored by Senator Webb that would have terminated the Volumetric Ethanol Excise Tax Credit (VEETC) and tariffs on imported ethanol, passed with bipartisan support in a 73-27 vote and would have saved taxpayers $6 billion annually.

Earlier this month, a compromise on ethanol subsidies was reportedly reached in the Senate. Although the deal would have ended the blender credit subsidies, it proposed to create new subsidy programs to support ethanol infrastructure.

“The Senate recently voted overwhelmingly to adopt an amendment offered by Senator Feinstein to terminate the Volumetric Ethanol Excise Tax Credit (VEETC) and tariff on imported ethanol by July 1, 2011,” the Senators said in their letter. “In keeping with the results of the recent vote, we should ensure that both the VEETC and import tariff are ended as soon as possible.”

Corn ethanol has a low Energy Return On Energy Invested. The fossil fuels required to create fertilizer and pesticides, to power tractors to plow and harvest, to power trucks to haul the corn to ethanol plants, and for other steps in the process has to be deducted from the energy in the ethanol. Some estimates put the EROEI at 1.3 and others at below 1 (more energy used as inputs than returned as ethanol). My guess: the corn ethanol EROEI is above 1 but below 2. Given the limited amount of high quality farm land available corn ethanol does not scale and is a bad idea.

Another source puts the subsidy at $5 billion per year. We can't grow our corn ethanol use without growing the subsidy. Well, we can't afford the subsidy now (and we can't afford about another $1 trillion per year of US government deficit spending). We've got to start cutting out the stuff with low or no value. Corn ethanol fits the bill for things to cut.

An end to the subsidy would also lower the price of food, especially meat. Corn prices would drop and since corn is used as animal feed beef, turkey, chicken, and pork prices would drop.

Grover Norquist is so dedicated to preventing tax revenue increases that Norquist sees opponents to ethanol subsidies as enemies. The man has become unhinged.

The conservative power broker Grover Norquist has battled Coburn, arguing that ending the handouts is equivalent to increasing taxes, meaning that candidates who signed a no-new-taxes pledge would be breaking their word. He has charged that Coburn "lied his way into office."

The subsidy for ethanol is akin to subsidies for medical care. The government pays. Therefore things get done that would otherwise not get done. The fact that the subsidy is distributed by the IRS is really irrelevant.

Share |      By Randall Parker at 2011 August 07 07:48 PM  Economics Energy


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Comments
WJ said at August 7, 2011 8:46 PM:

"Grover Norquist is so dedicated to preventing tax revenue increases that Norquist sees opponents to ethanol subsidies as enemies. The man has become unhinged."

Norquist is and always has been concerned specifically with policies that benefit the rich. That is why Americans for Tax Deform prioritized elimination of the "death tax" over other tax reductions, and why they actually favored (and advocated for) Bush's two amnesty proposals.

Practically the first act of the George W. Bush Administration, back in 2001, was to slash taxes on the rich. The next 7 years were a more or less complete betrayal of conservatives who supported those reductions but benefitted little from them.

Genuine conservatives - social conservatives, paleoconservatives, religious conservatives - need to understand that tax cuts for the wealthy are a bargaining chip, and that they'll never get conservatives policies in other areas - like spending reduction, immigration enforcement, or elimination of affirmative action - so long as they keep supporting those tax cuts without first getting something in return.

Randall Parker said at August 8, 2011 8:15 PM:

WJ,

You make a great point:

Genuine conservatives - social conservatives, paleoconservatives, religious conservatives - need to understand that tax cuts for the wealthy are a bargaining chip, and that they'll never get conservatives policies in other areas - like spending reduction, immigration enforcement, or elimination of affirmative action - so long as they keep supporting those tax cuts without first getting something in return.

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