Newspapers Across the Country Agree: End Ethanol Subsidies!

In light of TCS’ release of the Green Scissors 2010 Report on July 22 and our continued efforts to end wasteful ethanol subsidies, which cost taxpayers billions each year, TCS has compiled a list of editorials from newspapers across the country that stand in agreement with TCS that such excessive subsidies to an already established industry need to end.

Due to the fact that editorial pages tend to expire, TCS has deemed it necessary to cut and paste these articles from a variety of publications into our webpage for further review. Please see the attached articles below.

EDITORIAL: Survival of the Fattest
The Wall Street Journal
Monday, July 26, 2010
Website

The best refutation of the theory of the survival of the fittest is probably the corn ethanol lobby, whose annual $6 billion in federal subsidies have managed to outlive both its record of failure and all evidence and argument. So while we doubt another devastating study will result in any natural selection, recent findings from the Congressional Budget Office deserve more attention all the same.

CBO reveals that it costs taxpayers $1.78 in ethanol “incentives” to reduce U.S. gasoline consumption by one gallon—or nearly two-thirds of the current average retail gas price. CBO also estimates that cutting carbon emissions by one metric ton via ethanol runs to $754. To put that number in perspective, the budget gnomes estimate that the price for a ton of carbon under the cap-and-tax program that the House passed last summer would be about $26 in 2019.

That isn't a one-to-one comparison, for reasons too complicated to get into here, though CBO does note that cap and trade or a straight carbon tax would “generally be cheaper than reductions resulting from a tax credit that encouraged specific actions in fewer sectors of the economy.” An even more astounding feat is that these ethanol subsidies are redundant—consumers are already required to buy ethanol at the pump under the arbitrary gasoline-blending mandate that Congress imposed in 2007.

CBO is also honest enough to mention that in reality $754 may be purchasing a net carbon emissions increase. “Because the production of ethanol draws so much energy from coal and natural gas,” the authors write, “it can be thought of as a method for converting natural gas or coal to a liquid fuel that can be used for transportation.” Meanwhile, the assumptions of their model also exclude indirect land-use changes toward energy-intensive crops that also tend to boost overall CO2.

Given these realities, the only mystery is how an industry that produces a fuel that no one would willingly buy has managed to be subsidized over four decades at costs that are higher than anyone ever imagined. But then, maybe it merely illustrates the theory of the politically fittest.

EDITORIAL: It's time to end the excessive subsidies for corn ethanol
Washington Post
Saturday, July 24, 2010
Website

WHEN WASHINGTON starts handing out cash, it can be hard to stop. See, for example, the decades of subsidies the government has showered on the corn ethanol industry. The fuel was supposed to free America from its dependence on foreign oil and produce fewer carbon emissions in the process. It's doing some of the former and little of the latter. But corn ethanol certainly doesn't need the level of taxpayer support it's been getting. Lawmakers are considering whether to renew these expensive subsidies; they shouldn't.

The feds give companies that combine corn ethanol with gasoline a 45-cent tax subsidy for every gallon of corn ethanol added to gasoline. That's on top of a tariff on imported sugar cane ethanol from Brazil and federal mandates requiring that steadily increasing amounts of these biofuels be produced. The Congressional Budget Office this month estimated that, all told, the costs to taxpayers of replacing a gallon of gasoline with one of corn ethanol add up to $1.78. The tax incentives alone cost the Treasury $6 billion in 2009.

How about the environmental benefits? The CBO calculates that it costs a huge $750 to reduce annual carbon dioxide emissions by one ton using corn ethanol. And that figure relies on assumptions extremely favorable to the industry.

Not only are these subsidies expensive, but they are redundant. Since Congress has mandated that the industry furnish a steadily increasing number of gallons of ethanol every year, the stimulative effects of the tax incentives on corn ethanol production will continue to diminish. Numbers from the Food and Agricultural Policy Research Institute at the University of Missouri, on which the CBO relies, show that over the next 10 years, corn ethanol production will still increase — just not quite as quickly — if Congress allows the subsidies to lapse this year and leaves the mandate in place.

At this point, the question should not be whether to allow corn ethanol's tax incentives and trade protections to expire. The debate should be about why corn ethanol deserves any federal protection at all. There are certainly more effective ways to reduce oil consumption and greenhouse emissions.

EDITORIAL: Enough ethanol
Chicago Tribune
Friday, July 23, 2010
Website

Congress finally is starting to recognize the high cost of filling up gas tanks with ethanol, the motor fuel made from corn. Billions of dollars in federal subsidies are on the chopping block.

It's about time. With the national debt soaring, the government needs to wean the biofuel industry from its dependence on federal subsidies. Biofuels have always sounded better during the Iowa caucuses than they have performed in reality.

Taxpayers have bankrolled biofuel research and a boom in ethanol production. Aggressive mandates have hiked the amounts of ethanol blended into the gasoline supply, and the industry is pushing for even higher levels of the corn-based fuel in each gallon. At the same time, trade barriers have kept out cheaper ethanol produced from sugar in Brazil and other countries.

Those heavy-handed government policies were intended to develop a big new domestic industry that would reduce American dependence on oil, improve the environment and bring jobs to rural communities. The goals are worthy, but for all the expensive coddling, American taxpayers have little to show for their money.

Consider corn: When ethanol factories were popping up all over the heartland four or five years ago, livestock producers and food processors warned that using grain to make fuel would raise grocery prices. Not to worry, the biofuel industry responded, since corn would be phased out and inedible cellulose would be used instead. But the industry failed to deliver. “Cellulosic” ethanol, as it's called, looks like it may never roll out on a commercial scale, despite Uncle Sam bending over to make it happen.

Last week, the Congressional Budget Office calculated how much taxpayers provide in biofuel subsidies to reduce gasoline consumption. The bottom line: $1.78 for every gallon when the biofuel is made from corn. (That includes tax credits for petroleum blenders, plus lost revenues from excise taxes that otherwise would be collected.) Ethanol from cellulose costs a beyond-belief $3 a gallon in subsidies.

Enough already.

When President Barack Obama took office, the biofuel industry cheered. Here, after all, was a resident of the Corn Belt who had visited ethanol plants and understood the industry's allure for farm-state politicians.

But with the economy down and government spending up, some key Democrats are finding it impossible to make the case for the whopping subsidies. At the end of last year, a subsidy for the pint-sized biodiesel industry was allowed to expire. Now the House Ways and Means Committee is talking about slashing ethanol tax credits. Democratic Sen. Jeff Bingaman of New Mexico earlier this month urged Congress to weigh “the credit's very high cost to taxpayers.”

Wasn't Congress supposed to be doing that all along?

It's time to eliminate the tax credit. And before Congress even considers mixing more biofuel into the gasoline supply beyond the current 10 percent in each gallon, it needs to lift the protectionist barriers so ethanol brewed from foreign sugar can compete. Lawmakers also need to resist the biofuel industry's efforts to redirect funding into self-serving infrastructure projects.

EDITORIAL: Energy Subsidies — Good and Bad
New York Times
Saturday, July 28, 2010
Website

Congress must soon decide whether to extend federal tax subsidies for renewable energy that expire at the end of the year. The subsidies for wind, solar and geothermal energy are necessary to give these energy sources the help they need to compete with oil, coal and natural gas. While it renews those subsidies, Congress should end tax breaks for corn ethanol, which can stand on its own and is of dubious environmental benefit.

Tax credits for wind, solar and geothermal power have been around for decades. When the economy tanked and tax credits became less desirable to investors, the Obama administration converted them to a direct federal grant as part of the 2009 stimulus program. About $4.5 billion has since helped jump-start hundreds of projects — mostly wind and solar — and created thousands of new jobs.

Senator Maria Cantwell, Democrat of Washington, has drafted an amendment to extend the grant program for two years. The Senate should approve it. To move forward, these industries need to be able to depend on continued investment.

Ethanol, which in this country is made almost exclusively from corn, has been subsidized since the early 1970s, partly because it increases octane levels while helping to reduce certain pollutants, most notably carbon monoxide. Refineries that blend the ethanol with gasoline now get a 45 cent tax break for every gallon they produce. That break is no longer needed.

A 2007 energy law requires the country to produce steadily increasing volumes of corn ethanol — 11 billion gallons last year, rising to 15 billion gallons in 2014 — which guarantees a robust market for farmers and producers of ethanol. According to the Congressional Budget Office, the price tag last year for the ethanol tax break was about $6 billion.

This money mainly benefits refiners and big farmers, and could be better spent elsewhere — perhaps in developing more advanced forms of ethanol from grasses, scrub trees and plant wastes. Corn ethanol can actually increase greenhouse gases if grasslands or forests are ploughed for crop production.

A bipartisan group of senators, have rightly begun to question the subsidy. So have many members of the House Ways and Means Committee. Even the powerful ethanol lobby is showing signs of cracking, with Growth Energy, an ethanol trade group, suggesting a four-year phaseout. It would be far better to end it now. There are many more useful ways to spend taxpayer dollars.

EDITORIAL: Like oil in water, ethanol and subsidies are an unnatural mix
Chicago Business (IL)
Monday, June 28, 2010
Website

It would be a double tragedy if the oil spill in the Gulf of Mexico led to more government support for the ethanol industry.

As David Sterrett reports in Crain's this week, ethanol lobbyists are trying to use the spill to extract more federal aid for the uneconomic fuel they produce. Television commercials sponsored by the industry smugly note that ethanol has never fouled a major body of water like the Gulf.

Now, some argue that ethanol causes its own kind of ecological damage, by sucking up groundwater, emitting harmful gases and consuming more energy than it produces.

The industry rejects those arguments, but there's no denying that ethanol can't compete in the marketplace without government support. Producing the stuff costs more than it would sell for in an open market.

Urged on by farm states like Illinois and big corn processors like Decatur-based Archer Daniels Midland Co., Congress has mandated the use of ethanol in a fuel blend with gasoline. But the industry has over-expanded to the point that even the mandate isn't keeping ethanol prices high enough to turn a profit.

Faced with a glut of their own making, industry leaders are asking their friends in Washington for more help. They want the U.S. Environmental Protection Agency to boost the ethanol component of the fuel mix to 12% from 10%.

That's a bad idea for a couple of reasons. Most important, government shouldn't be manipulating markets to support industries that win the favor of lawmakers. Second, the industry's conduct suggests an increase in the mandate will only spur more expansion of ethanol supply, pushing prices down further. What happens then? Another increase in the mandate?

It's time to put a containment boom around the ever-expanding ethanol support system.

EDITORIAL: New ethanol giveaway delayed
Chattanooga Times Free Press (TN)
Tuesday, July 6, 2010
Website

One of the most obvious, unjustified giveaways of taxpayer dollars has been the subsidizing of corn-based ethanol, a fuel that is blended with gasoline.

The subsidy plays well in states that have a big farm presence, because it forces taxpayers across the nation to pay ethanol manufacturers 45 cents for every gallon of ethanol that they produce. Lawmakers in those states essentially buy votes and support by continuing the flow of tax dollars.

But it's a terrible deal for the rest of us. Ethanol damages small engines, such as the ones on lawnmowers. It also reduces mileage in vehicles, and it increases the price of many foods by diverting lots of corn from food production into fuel production. Ethanol can worsen air pollution, too, so it is hardly an “environmentally friendly” fuel.

Despite all those negatives, the Environmental Protection Agency has been studying whether to increase the percentage of ethanol that may be blended into our nation's gasoline supply — from 10 percent up to 15 percent. That would be nothing but another huge giveaway to ethanol producers, at the expense of the nation as a whole.

The EPA had planned to issue its decision this month, but now it says it will delay a final ruling for a few months, until sometime this fall.

That is a slight relief, but the Obama administration has unfortunately supported greater use of taxpayer-funded ethanol. And Congress has mandated that refiners blend 12 billion gallons of ethanol into the fuel supply this year. That requirement is scheduled to jump to nearly 36 billion gallons by 2022.

Remember: Taxpayers are on the hook for a subsidy for every single gallon! Worse still, if 10 percent ethanol reduces mileage, imagine how much your mileage may suffer when your gasoline has 15 percent ethanol.

It is long past time to end — rather than expand — this ridiculous subsidy.

EDITORIAL: Ethanol subsidy: Time to end government support
Watertown Daily Times (NY)
Sunday, July 25, 2010
Website

The ethanol industry has had some hard times in recent years. Now it could lose billions of dollars in government subsidies intended to lessen our dependence on foreign energy sources.

Proposals in Congress would slash or eliminate the federal tax credit of 45 cents a gallon paid to oil companies to use ethanol, which can amount to $6 billion a year. That could rise tremendously with new federal mandates that require an increase in ethanol use from nine billion gallons to 36 billions by 2022.

Federal regulations now permit a 10 percent blend of the biofuel in a gallon of gas to reduce greenhouse emissions, and the industry is pushing to increase it to 15 percent.

A proposal in the House Ways and Means Committee would cut the tax credit to 36 cents. Sen. Jeff Bingaman, who chairs the Senate Energy and Natural Resources Committee, expressed some doubts about the credit. The industry is divided.

One group, Growth Energy, supports ending the credit to spend more money on flex-fuel cars.

Some environmentalists have started to question the use of ethanol's impact as forestland is clear to grow corn to take advantage of the market. Higher food prices and costs for animal feed have also been attributed to the diversion of corn to ethanol production.

It is also less efficient with 1.5 gallons of ethanol required to generate the same energy as a gallon of gas.

Growth Energy's CEO, Tom Buis, said they “are confident that in a fair and open market, ethanol can and will compete successfully against oil.”

The ethanol industry has benefited from taxpayer subsidies for 30 years. It is time to try the open market where it can stand or fall on its own.

EDITORIAL: Time for Baby Ethanol To Stand on Own Feet
Albuquerque Journal (NM)
Tuesday, July 20, 2010
Website

Thirty years into the experiment that is ethanol-based fuel, it's about time someone asked what, exactly, is the goal of the taxpayer-subsidized program.

And if it's accomplishing that goal.

And if it's $6 billion a year well spent.

New Mexico Sen. Jeff Bingaman chairs the Senate Energy Committee. He's right to ask those questions. It signals a turnaround from 2007, when Bingaman joined the Senate majority to approve a sevenfold increase in corn-based ethanol production.

Circa 2010, combine a tough economy with an unstable international stage and climate-change concerns. It's absolutely necessary:

• To figure out if the No. 1 goal is to reduce our nation's dependence on foreign oil or its release of carbon emissions.
• To realize that ethanol scores on the first count — so long as we're OK with higher food prices and lower mileage in our cars. It scores on the second — if we don't factor in the energy burned to create it in the first place.
• To determine whether converting food crops to energy crops makes sense when it negatively impacts the world food supply and uses copious amounts of water in the field and refinery and fuel to transport the raw material as well as the finished product.

Bingaman says Congress should “weigh all factors, including the credit's very high cost to taxpayers,” when considering extending ethanol's 45-cents-a-gallon tax credit. He's right — 30 years of nourishing taxpayer subsidies later, Baby Ethanol should be able to stand on its own two feet as an alternative to conventional fuel.

If it can't, Congress should make it clear the cost of continuing down the current road is just too high.

EDITORIAL: Time to abandon ethanol subsidies
San Antonio Express (TX)
Monday, August 2, 2010
Website

There are no silver bullets for the effort to kill U.S. dependency on foreign oil and develop domestic, clean sources of energy. Every potential source requires a trade-off of some sort involving affordability, safety, environmental impact, national security and other factors.

Drill more and in deeper waters for oil and gas and you increase the risks of a catastrophic spill, as recently happened in the Gulf of Mexico. Subsidize the creation of wind farms and you'll have to carve through pristine areas and erect transmission lines to get their power to market, as residents of the Hill Country are discovering.

In some cases, those energy trade-offs make sense. At the very least, some of the negative consequences can be mitigated.

In the case of ethanol, however, it's clear that the cost of taxpayer investments far exceed their value.

Tax subsidies for the ethanol industry totaled $6 billion in 2009, according to a new report from the Congressional Budget Office. What is the nation getting for its money? The CBO says it costs taxpayers $1.78 to replace 1 gallon of gasoline with 1 gallon of ethanol. The subsidies equal the price of about two-thirds of a gallon of gasoline.

That humongous support might be worthwhile if it produced some corresponding benefits. But on the environmental front, CBO estimates that its costs at least $750 to cut 1 ton of carbon dioxide emissions with ethanol.

The incentives have had the perverse effect of diverting farm land from food production and clearing even more land for corn ethanol production. And this ignores some scientific studies that show the production cycle to create a gallon of corn ethanol consumes more energy than it produces.

Congress has mandated that an increasing amount of ethanol be blended into the nation's fuel supply through 2022. That means there's a guaranteed, established, steadily growing market for ethanol. Why does the industry need a $6 billion tax break, one that principally benefits corporate giants like Archer Daniels Midland Co.?

It doesn't. In a time that begs for fiscal restraint, Congress should end ethanol subsidies that have long outlived their usefulness.

EDITORIAL: Let those ethanol subsidies evaporate
Long View Daily News (WA)
Wednesday, August 4, 2010
Website

The federal subsidy for ethanol expires at the end of the year, handing the many outspoken budget hawks on Capitol Hill a timely opportunity to earn their stripes. No legislation is required. All they would have to do to save taxpayers upwards of $4 billion annually is turn a deaf ear to farm lobbyists and let this subsidy expire. Or, failing that, tell the biofuels industry its days on public assistance are numbered and draft legislation phasing out ethanol tax credits over the next couple of years.

This industry has been subsidized by taxpayers for some 30 years now. Jimmy Carter made the federal bet on corn-based ethanol in hopes of reducing our dependency on oil, particularly foreign oil. It's been clear for some time now that Carter made a bad bet. Nevertheless, subsequent administrations have kept doubling down on it.
The subsidy is being sustained by the special interests it serves, and the public interest is not among them. Suspicions that taxpayers were not getting value out of the billions of dollars being shelled out in ethanol subsidies began to grow at least a decade ago. A 2002 Office of Management and Budget memo noted that the President's Council of Economic Advisers and the Federal Trade Commission believed the government's ongoing effort to aid and protect the biofuels industry would ultimately prove costly for consumers and the government, and provide little environmental benefit. That red flag was largely ignored.

In 2007, the U.S. Environmental Protection Agency upped the ante, mandating that 9 billion gallons of ethanol and biodiesel be blended into gasoline between Sept. 1, 2008, and Aug. 31, 2009. Texas Gov. Rick Perry appealed to the EPA for some relief from the mandate, noting that the diversion of a third of the nation's corn crop to ethanol had nearly tripled feed prices for Texas livestock producers and was driving up food prices nationwide. The EPA refused to budge.

The federal agency's rejection of Perry's appeal might have been justified if it could be shown that coddling the biofuels industry was contributing to the nation's energy security or otherwise serving the public interest. But that wasn't the case. Food-to-fuel mandates and ethanol subsidies have not held down fuel prices or shown any real potential with regard to reducing our dependence on foreign oil. Environmentally, the mandates and subsidies will likely prove to be counterproductive. Several environmental groups have warned that increased corn production is hurting wildlife habitat. Some studies suggest that corn-based ethanol produces the same greenhouse gas pollution as fossil fuels, when calculations include the impact of cleared land and the energy it takes to produce the biofuel.

Ethanol proponents say the industry will soon begin to transcend from corn to cellulose, a plant fiber found in grass clippings, tree limbs and other vegetation. But there seems little basis for their confidence in bringing cellulosic ethanol to market. It's less commercially viable than corn-based ethanol, which even now is not able to stand on its own.

Taxpayers have received no real benefit from the tens of billions of dollars they've invested in ethanol production over the years. The diversion of corn has led to higher feed costs for the cattle and poultry industries, driving up the price of eggs, milk, bread and other staples. Our dependence on foreign oil has never been greater. It's time Congress cut the losses.

Blumenauer: Congress Must Seize the Moment
Roll Call
Thursday, July 26, 2010
By Rep. Earl Blumenauer, Special to Roll Call
Website

In this time of unique political challenge and stress, we have a special moment for progress.

Even though Washington, D.C., appears to be deeply polarized on even the most basic elements — even those that in the past have been relatively noncontroversial and bipartisan — there is nonetheless some cause for hope that we can move forward.

“Green Scissors 2010” — a report highlighting government programs and subsidies that are wasteful to taxpayers, harmful to the environment and bad for consumers — covers a vast array of opportunities to cut spending and protect our limited resources.

This is a path that is well-worn when it comes to the facts and is increasingly gaining credibility for the policy arguments. It is also supported by Members of Congress from the left and the right, along with a coalition of taxpayer, environmental and consumer groups.

The deficit has been growing exponentially for the past 10 years, and there is growing awareness that special federal benefits and tax subsidies to some of the largest corporations has outlived its usefulness. Now Members of Congress have a renewed impetus for environmentally oriented budget cuts.

Most important, these are areas where the factual consensus is reflected in public opinion.

Overwhelming majorities of people — regardless of political party or where they live — are skeptical and even hostile to unnecessary tax breaks for the largest oil corporations. In 2008, the top five oil companies made a combined profit of $100 billion. In 2009, ExxonMobil hit an all-time record $45.2 billion in profits, yet paid no U.S. federal income taxes. In fact, it got a $156 million tax refund.

Unlike the growing clean energy industries, oil companies have been drilling, exploring and researching for decades. Certainly they no longer need help from the American taxpayer. This is why I introduced legislation — the End Big Oil Tax Subsidies Act — to repeal $26 billion worth of tax credits, deductions and exemptions over the next five years.

These oil tax loopholes, which would provide billions of dollars for our nation’s other numerous priorities, are just one example of the outmoded, wasteful and in some cases destructive subsidies the government provides companies using federal land, oceans and resources.

Another, the 1872 Mining Law, was enacted under President Ulysses S. Grant and provides royalty-free extraction of valuable minerals from federal lands. Any cross-section of the public rejects the idea that taxpayers should continue to receive nothing in return for the $1 billion worth of minerals extracted annually from these lands, sometimes by foreign companies.

Additionally, it doesn’t take a Nobel Prize-winning economist to recognize that when we have a mandate to use ethanol in our gas formulation, we don’t need an extra tax incentive to make sure it happens and is profitable. In 2009, U.S. highway vehicles burned 139.5 billion gallons of fuel, including 10.6 billion gallons of ethanol. This ethanol displaced only 7.2 billion gallons of gasoline because of the lower energy yield from corn ethanol. We could have saved that amount of gasoline by increasing fleet fuel economy by just 1.1 miles per gallon, at no taxpayer cost. Instead, in 2010 taxpayers will pay $7.6 billion to subsidize ethanol.

Last but by no means least, 62 percent of farmers do not benefit from costly farm subsidies, which go mostly to large corporate farms that already are financially stable. This drains resources that could otherwise be used to help farmers conserve their land and protect their water. The reality is that 90 percent of government subsidies flow to only a handful of commodity crops, and ultimately these subsidies go mostly to corporate operations instead of small family farms that are facing new economic and environmental challenges. By simply reducing commodity crop subsidies by 50 percent, we could save taxpayers more than $26 billion over the next five years and actually increase help for the typical family farmer.

We have an opportunity right now for a grand bargain — one that includes not just the right and the left, but a wide array of the American public wanting to reform these outdated and harmful subsidies.

When we are working to protect the environment, revitalize the economy and help small businesses, stretch budget dollars, and reduce the federal deficit, now is the time for politicians to enact long-overdue reform. Our economy cannot afford delay, nor can our dwindling resources or ailing planet.

Rep. Earl Blumenauer (D-Ore.) is a member of the Energy Independence and Global Warming Committee.

Babcock: The economics of U.S. ethanol policy
The Hill
Tuesday, July 27, 2010
By Bruce A. Babcock, Iowa State University
Website

With the economy still not creating nearly enough jobs, U.S. ethanol producers are warning that ending the government subsidies and import restrictions that benefit their industry could eliminate some 112,000 to 160,000 jobs.

An unlikely collection of environmentalists, taxpayer groups and meat producers, meanwhile, argue that America no longer needs and can’t afford the current policies.

Brazil also is a player in the debate. The United States currently is the world’s leading ethanol producer, refining about 12 billion gallons of corn-based fuel last year. Brazil comes in second, producing around 7 billion gallons annually from sugar cane.

The South American country hopes to export more ethanol to the United States. Domestic manufacturers argue, however, that this would increase America’s dependency on foreign energy.

With so many competing claims and the Gulf oil disaster spurring greater interest in renewable fuels, two Iowa State University colleagues and I developed a new economic model to examine the likely consequences of changing U.S. ethanol policies.

Our model randomly “drew” corn yields and gasoline prices — the two key factors affecting the profitability of U.S. ethanol — and then calculated how the U.S. and Brazilian ethanol markets would react to each draw. We repeated the calculations 5,000 times to derive an average market response for each scenario.

Three government initiatives help shape the current U.S. market for ethanol: 1) mandates to increase the use of renewable fuels like ethanol from approximately 13 billion gallons today to 36 billion gallons by 2022, 2) a 45-cent-per-gallon tax credit for “blenders” who add ethanol to gasoline, and 3) a 54-cent-per-gallon tariff, which increases the price of foreign (mostly Brazilian) imports. After 30 years, the tax credit and tariff are due to expire at the end of this year, which has triggered an intense lobbying campaign.

Our research, financed by a grant from the Brazilian Sugarcane Industry Association, found that allowing the blenders credit and import tariff to expire would have neither the dramatic, adverse effect U.S. ethanol producers claim, nor create the export bonanza Brazilian producers hope for.

Here’s what we found:

Production. Because of strong demand for ethanol in Brazil, elimination of the tax credit and tariffs would have little short-term impact on the U.S. corn and ethanol markets. U.S. ethanol production would increase to some 14.5 billion gallons by 2014 without subsidies and trade restrictions; U.S. imports of Brazilian ethanol would rise modestly to about 740 million gallons — less than 5 percent of the total U.S. ethanol market.

Jobs. There is no scenario under which 112,000 jobs — or anything remotely close to that number — would be lost. If the mandates are kept in place but the tax credits and trade protection are allowed to expire, we estimate the possible loss of no more than 300 jobs in the ethanol industry in 2014.

Fuel prices. Ending the tax credit and tariff would reduce ethanol prices by 12 cents per gallon in 2011 and 34 cents per gallon in 2014. Because most gas sold in the United States contains 10 percent ethanol — a limit the Environmental Protection Agency may increase to 15 percent this fall — lower ethanol prices lead to modest savings at the pump: a penny or two per gallon next year and 3 to 5 cents per gallon in 2014. Opening the U.S. market to all producers also would mean that in years when domestic ethanol production is low, imports would lower the consumer cost of meeting blending mandates.

Taxpayers. The tax credit prompts blenders to use about 900 million gallons of ethanol each year above mandated levels. This costs taxpayers some $6 billion annually (or almost $7 per gallon). Ending the subsidy would save that amount.

U.S. ethanol production and the demand for corn will continue to grow with or without the tax credit and tariff. U.S. drivers and taxpayers stand to benefit if they are allowed to lapse.

Bruce A. Babcock is professor of economics and director of the Center for Agricultural and Rural Development at Iowa State University.

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