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Vilsack Changes Tune on the Ethanol Tariff

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In what was billed as a major speech at the National Press Club last week, U.S. Department of Agriculture Secretary Tom Vilsack unveiled a laundry list of proposals designed to spur production and demand for biofuels. Along the way, he expressed the belief that "the [ethanol import] tariff is likely to continue but over time be phased out," in conjunction with his call for a "fiscally responsible short-term extension of the Volumetric Ethanol Excise Tax Credit [VEETC]."

Vilsack's remarks put him at a great distance from where he stood four years ago when (as Governor of Iowa and a presidential hopeful) he offered surprisingly candid remarks on those very topics in a sitdown at the Council on Foreign Relations. Vilsack spoke broadly of the need for America to put aside parochial interests and challenge its renewable fuels industry to be innovative and creative - and specifically called for eliminating protective measures like the tariff on Brazilian sugarcane ethanol.
See the discrepancy in his statements in this video:

The full text, audio and video of this conversation can be found here, but the following excerpts are especially telling: TOM VILSACK, Governor, State of Iowa "Some might suggest that there may be a difficulty even, with conservation, having sufficient supplies of renewables, which is why we should rethink our tariffs in connection with Brazilian ethanol. Those tariffs should be reduced and lifted as we embrace ethanol as a short-term strategy for energy security..."

"In terms of looking at the national interest, you said some things that were certainly eye-catching--quite--some would even say courageous. You're a governor from a Midwestern state--strong farm lobby, obviously, and if I heard you correctly, you talked about changing the subsidy regime for ethanol as it stands--perhaps even using an inverse correlation with the oil price; that corn may not be the sustainable future for this fuel; and if I heard correctly, that you want to remove the tariff on imports, which would mostly affect Brazilian ethanol at the moment. I mean, these are hot buttons on this issue. How does this play in your home state? When Senator Lugar brought up the issue of Brazilian tariff--or the tariff on Brazilian ethanol being lifted, he was called a traitor to the state by another colleague in the Senate. I wondered if--how does this play at home, thinking about the broader national interest?"

TOM VILSACK, Governor, State of Iowa
"Well, we'll find out. (laughter)

I think it's incumbent upon anybody coming into a group like this to speak honestly. And I think it's important and necessary for us to begin putting aside parochial interests and focusing on the national interest.

If we truly want an innovative and creative renewable fuel industry, then it needs to be challenged. And if we create a set of protections that allow it to not be as creative and innovative as possible, then we aren't doing a service to the industry or to the people of this country.

I happen to think that there's enough innovation and creativity in this country that if we basically reduce and eliminate that tariff that over time we will produce ethanol more effectively and more efficiently, and we'll be able to compete with Brazilian sugarcane-produced ethanol, and I think we'll be able to do a better job."

How the times have changed since 2006. In last week's speech, Vilsack often referred to U.S. ethanol refiners as if they comprised a nascent and fragile industry, rather than the world's top producers who are in the midst of an export boom to other countries. And let's remember that President Obama's Biofuels Interagency Working Group released a report earlier this year confirming that the U.S. corn ethanol industry is "mature." The fact that ethanol tax credits and trade protection have been in place for 30 years didn't get much air time either.

Of course, it's ultimately up to Congress to decide what to do with this expiring ethanol program. I hope lawmakers in this debate are seeing a recently updated report by the nonpartisan Congressional Research Service, Renewable Fuel Standard (RFS): Overview and Issues, that details the extraordinary cost subsidy extension would entail. Particularly page 16 where the researchers say: "Based on CRS calculations, federal biofuels tax credit subsidies will grow from about $6.7 billion in 2010 to over $27 billion in 2022, under the assumption that the RFS is fully met and that all tax credits are extended through the entire period. The total liability from 2008 through 2022 under these same assumptions is estimated at nearly $200 billion." In a time of soaring deficits, that's an astronomical sum to pay a thriving industry for servicing a mandated market.

Opponents of those existing subsidies and trade barriers are continuing to make noise. A broad coalition of environmental groups, food producers and taxpayer advocates sent a letter to congressional leaders urging rejection of the corn ethanol industry's latest wish list - much of which was included in Secretary Vilsack's speech - citing its fiscal irresponsibility and negative effect on consumer food prices and the environment.

I hope Secretary Vilsack remembers that "if we truly want an innovative and creative renewable fuel industry, then it needs to be challenged. And if we create a set of protections that allow it to not be as creative and innovative as possible, then we aren't doing a service to the industry or to the people of this country." There's wisdom - and benefits for Americans in the form of lower fuel prices and taxpayer savings - to be found in fostering competition.

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