Let Ethanol Subsidies Die

December 3, 2010

Free Market Foundation

It’s time to let ethanol subsidies die, says Ronald Bailey, Reason Magazine’s science correspondent.

In 2004, the United States government started offering a tax credit worth 51 cents for each gallon of gasoline containing 10 per cent ethanol.

The 2008 farm bill lowered that credit slightly to 45 cents per gallon, but kept it going for another two years.

Meanwhile, diverting grain to ethanol production caused corn prices to soar, lining the pockets of corn growers and refiners while increasing food costs for humans and feed costs for animals.

The good news is that unless Congress acts, the $5 billion in annual subsidies to corn ethanol will expire at the end of the year. The bad news is that the Environmental Protection Agency (EPA) exacerbated the situation last month when it raised the amount of ethanol that can be blended with gasoline from 10 per cent to 15 per cent for fuelling late model cars.

The EPA boosted the amount of ethanol that can be blended with gasoline because the industry is currently producing 13 billion gallons.

Since the United States consumed only 138 billion gallons of gasoline last year, that brings ethanol producers dangerously close to maxing out their market.

In the meantime, higher feed costs have driven farmers to cut their herds in July the number of beef cattle in the United States dropped to the fewest since 1973 and the number of breeding hogs fell to near the lowest level ever.

In addition, it turns out ethanol isn’t so green after all. Even an analysis by the EPA found that current ethanol production techniques actually result in higher emissions of greenhouse gases than refining and burning ordinary gasoline.

Failing to make a compelling case for the environmental benefits of ethanol, advocates often fall back on claims about energy independence. But a recent analysis by Robert Bryce, a senior fellow at the Manhattan Institute, finds that ethanol has not reduced U.S. oil imports, says Bailey.

Source: Ronald Bailey, Let Ethanol Subsidies Die, Reason Magazine, November 16, 2010.

For text: http://reason.com/archives/2010/11/16/congress-let-ethanol-subsidies

For more on Environment Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=31

First published by the National Center for Policy Analysis, United States

FMF Policy Bulletin/ 23 November 2010