Ethanol Subsidies

Jeff Siegel

Written By Jeff Siegel

Posted June 20, 2011

So let’s see where we are…

In an effort to get our fiscal house in order, Republicans decided it would be a good idea to cut funding for public radio and Planned Parenthood. Because clearly, this is what’s bankrupting this country.

And last week, Joe Biden told reporters one of his first wasteful spending targets is a website dedicated to the desert tortoise.

Are you freakin’ kidding me?! Can you believe the stones on this guy?

Meanwhile, the Senate has just rejected bills to end billions in tax breaks for oil companies and billions more in ethanol subsidies. The latter just went down last week, with a 40-59 vote.

Most votes against ending this particular ethanol subsidy came from Democrats — although despite Oklahoma Senator Tom Coburn announcing that Senate Democrats killed the measure, 13 of his fellow Republicans also voted against the bill. (Not surprisingly, these were mostly senators from corn-producing states. Shocker!)

Regardless of which side of the aisle you call home, the bottom line is the whole thing is just one more gigantic tax payer-funded scam that, by the way, does nothing to solve our oil addiction…

It only prolongs it.

What $54 Billion Buys You

For the sake of clarification, this subsidy — known as the Volumetric Ethanol Excise Tax Credit (VEETC) — was initially designed to provide incentives for fuel suppliers to blend ethanol with gasoline. But since they’re already required to do so under the 2007 Renewable Fuel Standard, we’re basically paying these guys to follow the law.

If we’re going to do that, I want the government to send me a fat check every month for obeying the speed limit.

U.S. taxpayers have ponied up $22.6 billion in ethanol subsidies since 2005. Another $31 billion will be spent in the next three years.

Now, supporters of the VEETC will tell you that the subsidy ultimately benefits the consumer by lowering gas prices. But they neglect to tell you that government-subsidized ethanol production also increases the cost of your food.

Sure, high food prices are not the result of just ethanol production. Bad weather, increased demand, high oil prices all play a role. But as the USDA pointed out in its recent corn forecast, corn supplies will be very tight this year due to bad weather and the fact that the share of corn going to ethanol is increasing.

In the United States, 35 percent of corn in the growing season ending in 2010 went to the production of biofuels. It’s expected to reach 38 percent in 2012.

In what universe does it make sense to allow a transportation fuel to monopolize nearly 40 percent of your primary food crop — particularly, a fuel used to power an outdated internal combustion engine??

Sorry, but this is one consumer who would happily pay a few extra pennies at the pump if it meant we could end these ridiculous subsidies, especially since corn-based ethanol isn’t quite as “green” as some would lead you to believe…

This “Clean Fuel” Ain’t So Clean!

Years ago, it wasn’t hard to find an environmentalist cheering the development of the ethanol industry.

Rest assured, that time has passed.

Today, ethanol gets about as much love from environmentalists as Exxon and Monsanto. The reason is simple: Ethanol is not so clean when you look at the complete lifecycle emissions…

According to the Union of Concerned Scientists:

Accurate lifecycle emissions accounting requires that all of the energy and inputs associated with growing, producing, delivering, and using any biofuel are tracked, including emissions associated with changes in land use. Most analyses conducted before 2008 indicate that corn ethanol delivers a 10 to 20 percent reduction in global warming emissions over its lifecycle compared with gasoline, but these analyses did not include land use changes.

The reduction is modest because corn production requires a significant amount of fossil fuel inputs for farm operations, processing and distilling, and fertilizer production (generally natural gas). Fertilizers used for corn production also generate a substantial amount of nitrous oxide, a potent global warming pollutant, as unused fertilizer breaks down in the field.

This is a mess… and we’re paying for it.


Look, we can keep talking in circles over this.  But the truth is, the quickest way for us to reduce our vulnerabilities to Peak Oil is to simply allow the market to operate without government interference.

Let the true cost of gasoline mock us at the pump, and you’ll not only see a major drop in consumption; you’ll also see this nation get on the fast track to developing and embracing alternatives to the outdated conventional internal combustion engine.

Let the market do what it’s supposed to do, and you’ll see the kind of inventiveness and resourcefulness the United States used to be known for.

This will move us forward — not another $6 billion deducted from our paychecks.

To a new way of life, and a new generation of wealth…

Jeff Siegel
Editor, Energy and Capital

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