Why Congress should let a major biofuels tax credit expire this year
Though its name may be little-known, the Volumetric Ethanol Excise Tax Credit (VEETC) is not a little subsidy: taxpayers pay more than $5 billion (a number that's increasing) to oil and gas conglomerates like ConocoPhillips and Exxon Mobil to blend ethanol with gasoline each year.
This is in spite of a growing body of evidence that corn ethanol actually causes substantially greater greenhouse gas emissions than traditional gasoline, causes water pollution in the form of fertilizer run-off as seen in the "dead zone" of the Gulf of Mexico, and contributes to rising food prices globally.
But it's not just environmentalists or food sovereignty campaigners who are concerned about this giant taxpayer giveaway. Good government advocates who oppose wasteful spending are at the fore of the fight to repeal ethanol subsidies, and for good reason. The $5 billion VEETC subsidy pads the pockets of Big Oil, but does almost nothing to advance its stated purpose of actually promoting ethanol production.
While this subsidy boondoggle is due to expire in less than two months, the ethanol industry and its congressional cronies have been pushing for its extension. However, given that several members of Congress with a history of backing dirty ethanol have lost their re-election bids, including Reps. Stephanie Herseth-Sandlin (D-SD) and Earl Pomeroy (D-ND), Congress has the opportunity to save taxpayers billions of dollars and advance smart policy by ending this giveaway. As the legislative conversation quickly moves to what the 112th Congress will do (or not do), the lame duck session (between now and January, when the new Congress is sworn in) looks to be turning into the last chance to pass this bad legislation. The ethanol lobby is responding, stepping up its game by running ads, making new hires and attempting to cash in on the investments they've made into the congresspersons that they've supported over the last few election cycles -- especially those representatives who didn't win re-election --in order to extend subsidies for corn ethanol.
Earlier in the year, Blue Dog and member of the powerful House Ways and Means Committee Rep. Earl Pomeroy championed the extension of the tax subsidy for five years. The cost of this proposal would have been well over $30 billion dollars to corn ethanol alone. According to conversations that Friends of the Earth's biofuels campaign coordinator, Kate McMahon, had with congressional staff, Pomeroy made the case to his Democratic colleagues that he needed to extend this credit in order to win re-election. Despite indications from his colleagues on Ways and Means that they would support extension of this credit -- and the vast amount of money he was able to garner from the biofuels industry as a result of his pro-ethanol stance -- it is clear that Pomeroy's election hung on much more than the credit. Pomeroy lost by a 10 percent margin. Now, with the elections over, the question remains: will Congress extend this credit or allow it to expire?
There are many reasons Congress should choose expiration. The tax credit is completely unnecessary. VEETC was established in 2004 as a payment to gasoline refiners to motivate them to purchase and blend ethanol into the gas supply. However, because of an ethanol use mandate set out by the Energy Policy Act of 2005 and expanded in the Energy Independence and Security Act (EISA) of 2007, oil companies are now required to blend ethanol into the gas supply. The mandate thus eliminates the reason to incentivize ethanol blending through subsidies. The result is that in effect, taxpayers have spent more than $20 billion in the past five years to pay refineries to do something they are already required to do.
Recent studies by the Congressional Budget Office and Iowa State University conclude that the mandate alone is sufficient to increase ethanol production. The reality is that instead of increasing ethanol production, VEETC increases the ethanol industry's profit margins by encouraging oil companies to buy slightly more ethanol at higher prices. Any claim that VEETC has a substantial impact on ethanol production and blending is false. Oil companies agree. Valero Energy Corporation and ExxonMobil -- two of the largest U.S. oil refiners -- have publicly said that they neither need nor want VEETC. Irrespective of the credit, they'll purchase and sell the amount of ethanol that they're required to under the mandate.
Last month, seeing the writing on the wall for their doomed subsidy, ethanol industry groups, including the Renewable Fuels Association, American Coalition for Corn Ethanol, Growth Energy, and National Corn Growers Association, introduced a proposal that they claimed represents a "turning point." But in reality, it was more of the same: waste billions of taxpayer dollars on a mature industry that needs no further subsidization.
Not only does their plan call for extending VEETC through 2011 at 36 cents a gallon, it guarantees that taxpayers will continue to foot the bill to subsidize dirty ethanol for an additional four years via a "producers' credit." The 36 cent rate represents a reduction from the current rate of 45 cents per gallon, but even with the reduction the tax credit would still cost taxpayers at least $4.7 billion next year. There are better ways to spend this money. However, considering that many lawmakers have been critical of VEETC, which will cost more than $5.6 billion this year alone, and have called for a reduction and complete phase-out of VEETC, this proposal doesn't seem as revolutionary as the industry would have you believe. While VEETC is currently paid to gas and oil companies that blend ethanol into the gas supply, redirecting the payments to ethanol producers would not make the tax credit any less of a boondoggle: ethanol consumption would still be required by the mandate, making subsidizing the fuel redundant and wasteful, regardless of to whom the subsidy is paid.
At the end of the day, ethanol subsidies are little more than a taxpayer giveaway to big oil companies that also slightly increase the profits of a handful of agribusiness corporations -- corporations whose practices contribute to a wide array of social and environmental problems, such as water pollution, ecosystem destruction and degradation, hunger, and land inequity. Industrial biofuels like the corn ethanol subsidized in the U.S. today are no exception. Let's stop giving destructive industries -- fossil fuels and biofuels alike -- billions of taxpayer dollars. Let's end VEETC this year.
Follow Erich Pica on Twitter: www.twitter.com/foe_us
http://www.cbo.gov/ftpdocs/100xx/doc10057/04-08-Ethanol.pdf
"The impact on food prices resulting from hikes in the price of corn related to ethanol production
was smaller than the effect of higher prices for energy,"
The World Bank issued a report recently stating that the contribution of ethanol production to the rise in food prices was much less than formerly thought:
"Clearly US maize‐based ethanol production, and (to a lesser extent) EU biodiesel production) affected the corresponding market balances and land use in both US maize and EU oilseeds. Yet, worldwide, biofuels account for only about 1.5 percent of the area under grains/oilseeds. This raises serious doubts about claims that biofuels account for a big shift in global demand. .... it is striking that maize prices hardly moved during the first period of increase in U.S. ethanol production, and oilseed prices dropped when the EU increased impressively its use of biodiesel. On the other hand, prices spiked while ethanol use was slowing down in the U.S. and biodiesel use was stabilizing in the EU.”
http://www-wds.worldbank.org/external/default/WDSContentServer/IW3P/IB/2010/07/21/000158349_20100721110120/Rendered/PDF/WPS5371.pdf
But note that if we stopped the VEETC independent ethanol producers would quickly be driven out of business as the Big Oil companies would refuse to pay the higher price (with the full excise tax included). The oil companies would be happy to buy up the Ethanol producers (cheap) so they could then control the price (there would be no open market pricing of ethanol) they sell it to themselves for.
The Oil companies couldn't care less about improving the efficiency of ethanol production (unless maybe you held a gun to their heads). To bring cellulosic ethanol to market as quickly as possible we need a strong (and independent from oil companies) ethanol industry. A strong and profitable starch based ethanol industry is essential to bringing cellulosic ethanol to the market as cellulosic ethanol will need the production infrastructure provided by the starch based ethanol industry to scale up so as to be profitable as soon as possible.
The oil companies are not interested in bringing any form of ethanol (starch based or cellulosic based) to the marketplace.
The author makes claims that are "questionable". I'm not surprised at the lack of understanding of ethanol, given his lack of education and training . His bio on the Friends of the Earth webpage lacks any evidence of obtaining any kind of a degree, in any discipline:
"Erich comes from a family of farmers and educators in a conservative part of southwest Michigan. He discovered his passion for the environment while attending Western Michigan University. After school, he moved with his wife-to-be Amy to the Washington, D.C. area."
I suggest Mr. Pica's lack of training deprives him of the ability to even discern valid research from invalid and assert conclusions from studies the results of which he does not understand.
He begins with a refutable claim: "This is in spite of a growing body of evidence that corn ethanol actually causes substantially greater greenhouse gas emissions than traditional gasoline, .... and contributes to rising food prices globally."
These two assertions are patently false. The scientific, empirically based research is clear. Ethanol burned in internal combustion engines produces less GHG emissions than gasoline. Research by the U.S. Dept. of Energy, Agiculture, University of Nebraska, ..
In the case of the "growing body of evidence" he provides a link to a article on a study published in "October 22 (2009) issue of Science Express". This "study" employs modelling which includes assumptions for indirect land use changes for ethanol production. Readers should know that Indirect Land Use Changes attributable to Ethanol produced from corn exists as a HYPOTHESIS. That means it is an idea that needs to be tested to see if it even can reach the level of a theory. NOte furher that ILUC for corn based ethanol is NOT corroborated by available EMPIRICAL EVIDENCE. (http://www.scribd.com/doc/14265687/In-Defense-of-Biofuels-Done-Right).
Furthermore, this 'study' is assuming a massive amount of ethanol production. I quote from the Science Express article:
http://www.sciencedaily.com/releases/2009/10/091022141117.htm
"The model predicts that, in both scenarios, land devoted to biofuels will become greater than the total area currently devoted to crops by the end of the 21st century."
Now it should be obvious the study is assuming much a much larger volume of ethanol will be produced from corn than will be mandated by the U.S. Government (15 billion gallons).
(continued)
The author makes claims that are "questionable". I'm not surprised at the lack of understanding of ethanol, given his lack of education and training . His bio on the Friends of the Earth webpage lacks any evidence of obtaining any kind of a degree, in any discipline:
"Erich comes from a family of farmers and educators in a conservative part of southwest Michigan. He discovered his passion for the environment while attending Western Michigan University. After school, he moved with his wife-to-be Amy to the Washington, D.C. area. He is a trombonist in the Montgomery County Symphony Orchestra, is an avid golf hacker, and enjoys working in his small chemical-free vegetable garden."
Mr. Pope said: "A little kowledge is a dangerous thing." I suggest Mr. Pica's lack of training deprives him of the ability to even discern valid research from nonsense and assert conclusions from studies the results of which he either does not understand or the conclusions of which he is intentionally twisting.
He begins with a refutable claim: "This is in spite of a growing body of evidence that corn ethanol actually causes substantially greater greenhouse gas emissions than traditional gasoline, .... and contributes to rising food prices globally."
These two assertions are patently false. The scientific, empirically based research is clear. Ethanol burned in internal combustion engines produces less GHG emissions than gasoline. Research by the U.S. Dept. of Energy, Agiculture, University of Nebraska, ..
The author makes claims that are "questionable". I'm not surprised at the lack of understanding of ethanol, given his lack of education and training . His bio on the Friends of the Earth webpage lacks any evidence of obtaining any kind of a degree, in any discipline:
"Erich comes from a family of farmers and educators in a conservative part of southwest Michigan. He discovered his passion for the environment while attending Western Michigan University. After school, he moved with his wife-to-be Amy to the Washington, D.C. area."
Mr. Pope said: "A little kowledge is a dangerous thing." I suggest Mr. Pica's lack of training deprives him of the ability to even discern valid research from the nonvalid and assert conclusions from studies the results of which he does not understand.
He begins with a refutable claim: "This is in spite of a growing body of evidence that corn ethanol actually causes substantially greater greenhouse gas emissions than traditional gasoline, .... and contributes to rising food prices globally."
These two assertions are patently false. The scientific, empirically based research is clear. Ethanol burned in internal combustion engines produces less GHG emissions than gasoline. Research by the U.S. Dept. of Energy, Agiculture, University of Nebraska, ..
The author makes several claims that are false. I shouldn't be surprised at the lack of understanding of ethanol, given his lack of education and training . His bio on the Friends of the Earth webpage lacks any evidence of obtaining any kind of a degree, in any discipline:
"Erich comes from a family of farmers and educators in a conservative part of southwest Michigan. He discovered his passion for the environment while attending Western Michigan University. After school, he moved with his wife-to-be Amy to the Washington, D.C. area. He is a trombonist in the Montgomery County Symphony Orchestra, is an avid golf hacker, and enjoys working in his small chemical-free vegetable garden."
As Mr. Pope once said: "A little kowledge is a dangerous thing." I would suggest Mr. Pica's lack of training deprives him of the ability to even discern valid research from nonsense and assert conclusions from studies the results of which he either does not understand or the conclusions of which he is intentionally twisting.
He begins with a fraudulent claim: "This is in spite of a growing body of evidence that corn ethanol actually causes substantially greater greenhouse gas emissions than traditional gasoline, .... and contributes to rising food prices globally."
These two assertions are patently false. The scientific, empirically based research is clear. Ethanol burned in internal combustion engines produces less GHG emissions than gasoline. Research by the U.S. Dept. of Energy, Agiculture, University of Nebraska, (continued)
http://farmfutures.com/blogs.aspx/epa/releases/final/rfs2/rule/1104