Like a sailor on a late night bender, corn ethanol boosters are trying to cajole another drink from the subsidy tap before the lights come on. Some members of 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 attractive–we all want a renewable, domestic, more efficient fuel. So for years Congress has lavished a tax credit and other subsidies, along with an import tariff on foreign ethanol, to boost the industry. But these efforts have yielded as much success as alchemists had turning lead into gold. And according to a new Congressional Budget Office report, replacing a gallon of gasoline with a gallon of corn ethanol costs taxpayers $1.78.
To promote ethanol, we give fuel blenders (generally the big oil companies) a 45-cents-per-gallon tax credit. That costs about $6 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 its 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.
In July another ethanol enabler, Growth Energy, rolled out a plan to end the subsidies. Well, not really. Sure, it called for phasing out the tax credit–so far so good–but also to 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.