Wasting tax dollars on ethanol

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Wednesday, December 8, 2010; 7:01 PM

IF YOU'RE wondering which of America's leaders are serious about cutting wasteful government spending, you might start by examining who's behind the effort to extend tax breaks to America's corn ethanol industry, which expire at the end of the year.

For decades, the idea behind corn ethanol has been that fuel derived from the crop could diminish America's dependence on distasteful foreign regimes for fuel - it's done some of this - and cut carbon emissions - it's done little of this. Congress established an overlapping and expensive system of subsidies, requiring that billions of gallons of ethanol be blended into the nation's gasoline, slapping tariffs on foreign ethanol and handing those who blend the fuel into gasoline a tax credit of 45 cents a gallon.

In other words, the government pays the industry for the privilege of selling to a captive market, spending $6 billion in 2009 on the tax credits alone. Without the tax credits, the amount of corn ethanol produced would still increase over the next 10 years, the Agricultural Policy Research Institute at the University of Missouri calculates. Yet the Congressional Budget Office (CBO) estimates that taxpayers still pay $1.78 to replace a gallon of gasoline with its energy equivalent of corn ethanol. The numbers are far worse when put in terms of greenhouse gases. The CBO reports that it costs a staggering $750 to reduce annual greenhouse gas emissions one ton by burning corn ethanol - and the CBO makes some generous assumptions to get even that figure.

Yet because the policy directs cash to farm states that are rich in political influence, lawmakers are rallying to save this payoff from expiration. Sen. Kent Conrad (D-N.D.), who insisted Sunday that President Obama's fiscal commission didn't go far enough in its deficit reduction plan, has paired with Sen. Charles E. Grassley (R-Iowa) to press for renewal of the gratuitous corn ethanol tax credit and the ethanol tariff through 2015. Typically, the farm lobby has won out on such issues. But this year it's meeting stronger than usual opposition from a bloc of fiscal conservatives and environmentalists, backed by such strange bedfellows as Tea Party organizer FreedomWorks and ultra-liberal pressure group MoveOn.org - even Sen. Jim DeMint (R-S.C.) and Al Gore.

An extension of the corn ethanol provisions shouldn't be part of the deal that's emerging on the Bush tax cuts, and if it is, senators should remove it from the resulting legislation. While they're at it, lawmakers should reconsider their blending mandate, too. There are far better ways to address oil dependence and greenhouse emissions.


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