Ethanol Tax Break Quietly Expires, Industry Moves on to Gas Pumps

After subsidizing the ethanol industry to the tune of $20 billion, its tax breaks quietly expired when the federal spending bill passed without renewing it. A government imposed tariff on imported ethanol also expired.

The subsidy – the Volumetric Ethanol Excise Tax Credit – has provided the oil and agribusiness industries with $0.45 per gallon of ethanol blended into gasoline, amounting to a total of approximately $6 billion each year.

The tax credit, which was in force for over 30 years, was opposed by both conservatives and liberals as a symbol of unnecessary, inappropriate corporate welfare.

In less than a decade, ethanol has risen from 10% of the US corn crop to almost 40%. Although ending the tax credit will reduce the industry’s profits, the US Renewable Fuel Standard, which mandates 15 billion gallons of ethanol to be blended with gasoline by 2015 (about 10% of all fuel used in cars and trucks), will
keep demand growing and corn prices high. About 13 billion gallons of corn ethanol is produced today.

The Standard is meant to wean the US off petroleum-based fuels, but most research shows biofuels likely increase greenhouse gas emissions rather than reduce them as originally thought.

Oregon State University Study

A recent Oregon State University study concludes biofuels policies have been very costly, and because they’re produced and transported using fossil fuels, and encourage further clearing of land for food, which leads to the release of carbon from soil,
they lead to higher greenhouse gas emissions.

Researchers studied many kinds of biofuel crops: corn ethanol,
soybean and canola biodiesel, cellulosic ethanol from switchgrass, and sugarcane ethanol produced in Brazil and exported to other countries.

Besides the ethanol requirement, the Renewable Fuel Standard calls for 1 billion gallons of biomass-based diesel; 16 billion gallons of advanced cellulosic biofuels; and 4 billion gallons of other advanced biofuels to be used in transportation fuel by 2022.

The researchers conclude meeting the Standard would reduce fossil fuel use by under 2.5% – about the same as a 25 cent per gallon gas tax, but at an estimated cost of $67 billion, compared to $6 billion for a gas tax.

"The end of this giant subsidy is a win for taxpayers, the environment and people struggling to put food on the table," says Michal Rosenoer of Friends of the Earth. "Production of corn ethanol is extremely dirty. It leads to more climate pollution than conventional gasoline, and with its use of pesticides, fertilizers and heavy industrial machinery, causes soil erosion and air and water pollution. And it means that less land is available for growing
food, so food prices go up."

Ethanol Industry is Major Polluter

South Dakota’s rapidly expanding ethanol industry has surpassed plastic manufacturers as a source of carcinogenic pollution in the state.

Last year, the ethanol industry accounted for 40% of reported carcinogens, down slightly from 44% in 2009, according to an Argus Leader analysis of 11 years of Environmental
Protection Agency Toxic Release Inventory data.

Ethanol Industry Reacts

"We may be the only industry in U.S. history that voluntarily let a subsidy expire," Matthew Hartwig, a spokesman for the Renewable Fuels Association, told the NY Times.

"The marketplace has evolved. The tax incentive is less necessary now than it was just two years ago. Ethanol is 10 percent of the nation’s gasoline supply."

He says the industry will produce the same amount of ethanol in 2012 as in 2011, or more.

"The ethanol industry has rejuvenated rural America," Todd Becker of ethanol producer Green Plains Renewable Energy told Reuters. "We bring high paying jobs back to small towns. It has huge impact on the local community. The brain drain out of rural America has been incredible. We’re able to bring it back with good, high paying jobs."

Now, the ethanol industry is turning its attention to the Farm Bill, where it hopes to expand subsidies to pay for E85 gas station pumps, so that "flex-fuel" cars can fill up with greater concentrations of ethanol.

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