It's time to end the excessive subsidies for corn ethanol

Saturday, July 24, 2010

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.

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