Ditching Ethanol Subsidy Will Save US $6 Billion - Won't Hurt Domestic Production Either

corn field photo

photo: Kevin Dooley

Two new pieces in NRDC's Switchboard blog remind us that the debate over corn ethanol subsidies is alive and well; and illustrate, through two new reports, the benefits of ditching Federal support altogether. The first, from the Congressional Budget Office, details how much money eliminating the Volumetric Ethanol Excise Tax Credit; the second, from Iowa State University, shows that not only would we save money but eliminating the subsidies, it wouldn't hurt production of corn ethanol. 98% of US Ethanol Comes From Corn
Sasha Lyutse sums up the CBO report:

The CBO report estimated that roughly 11 billion gallons of biofuels were produced and sold in the U.S. in 2009, over 98% of which (10.8 billion gallons) came from corn ethanol. Tax expenditures (essentially foregone tax revenues) in support of this production were roughly $5.16 billion, including VEETC payments of $0.45 cents per gallon for blending ethanol (regardless of the feedstock) and the additional $0.10 cents per gallon that "small producers" receive on the first 15 million gallons they produce.

CBO finds that before they even pay at the pump, taxpayers incur a cost of $1.78 to replace a gallon of gasoline by substituting corn ethanol. This accounts for not only the cost of the VEETC per gallon, but the relative energy content differences between ethanol and gasoline (gasoline contains ~32% more energy than a gallon of ethanol, so 1.48 gallons of ethanol are required to replace one gallon of gasoline), and changes in the consumption of ethanol and gasoline that can be attributed to the tax credit. (Switchboard)

Eliminating Subsidy Saves Money With Little Impact on Jobs
In the Iowa State report, done by Bruce Babcock at the Center for Agricultural and Rural Development, shows that allowing the VEETC and import tariff on ethanol to expire would have almost no impact on US corn ethanol in 2010. Though domestic ethanol production would decline by some 700 million gallons absent VEETC, that level of production is not needed to meet biofuel mandates.

Furthermore, the cost to US taxpayers of continuing the subsidy for one year, and boosting domestic ethanol production 5% above mandated levels, amounts to $6 billion.

As for job losses in the ethanol industry nearing 200,000 as alleged by the corn ethanol industry, Babcock's report finds that allowing the VEETC to expire would results in the loss of just 407 direct jobs.

Lyutse has more in depth analysis of both reports which is worth reading in full: Switchboard - Sasha Lyutse
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More on Ethanol:
Corn Ethanol Worse Than Oil? California Rules Yes
Ethanol: How the Fuel is Produced, Growing Corn and Other Feedstocks, and More
Ethanol Lobby Grows As Senate Debate Looms

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