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Innovation

The battle over tanking ethanol subsidies

As biofuel tax credits set to expire, senators from both parties fall on both sides of the ethanol debate. Renew the boost for corn-based fuels or put a boondoggle to bed?
Written by Melissa Mahony, Contributor on

The new year may see the end to some ethanol subsidies.

The volumetric ethanol excise tax credit (VEETC) which gives a 45-cent/gallon tax incentive for pure ethanol that is blended with gasoline, will expire at the end of the month. As will a tariff of 54-cents/gallon of imported ethanol, such as Brazil's sugar cane-based fuel, meant to spur domestic demand.

A bi-partisan group called to put the subsidies to rest in a letter, reported the Washington Post on Tuesday. The letter, signed by 17 senators (9 democrats, 8 republicans), states:

Subsidizing blending ethanol into gasoline is fiscally indefensible. If the current subsidy is extended for five years, the Federal Treasury would pay oil companies at least $31 billion to use 69 billion gallons of corn ethanol that the Federal Renewable Fuels Standard already requires them to use. We cannot afford to pay industry for following the law.

The law, finalized in November, calls for about 8 percent of all fuel used in 2011 to be from renewable sources and for blending 36 billion gallons of renewable fuel with transportation fuel by 2022.

But not all things bi-partisan take course without a fight. Not surprisingly, Midwestern senators on both sides of the aisle are clinging to the subsidies that keep federal money flowing to their constituents. Yesterday, 15 of them responded with their own letter, stating:

Our country is spending over $730 million a day on imported petroleum this year, money that often ends up in the hands of unstable or unfriendly governments. The price tag for our dependence on foreign oil is likely to rise even higher as the economy recovers. This is not the time to reduce the supply of a domestic source of fuel and place at greater risk the thousands of well-paying jobs that the renewable fuels industry has created.

One of the co-signers, Chuck Grassley (R-IA) wants to extend the VEETC until 2015. While "renewable," how good corn-based ethanol is for the environment, cars, and food prices is highly questionable.

Just Tuesday, the U.S. Geological Survey released a report saying government programs encouraging biofuel production caused corn acreage in the Mississippi Delta to grow 288 percent in 2007, while land for cotton decreased 47 percent. With corn requiring more water and fertilizer than cotton, the crop shift, they say, is affecting water levels and quality in northwestern Mississippi. Nitrogen levels in the Yazoo River, which feeds into the Mississippi, have grown 7 percent between 2002 and 2008, with repercussions for the Gulf's dead zone.

In an article discussing whether the oil spill or ethanol was worse for the Gulf, SF Gate reported:

Ethanol consumes two-thirds of all federal subsidies for renewable fuels, said Ken Cook, president of the Environmental Working Group, an advocacy group, leaving solar, wind and the rest to fight over the remaining third. Corn ethanol cost taxpayers $17 billion from 2005 to 2009, his group estimates.

"This is another industry that's entirely a creature of the government, even more so than corn growing per se," Cook said. "The production of ethanol wouldn't happen at all without government subsidies and protection."

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Image: Flickr_Randy Wick

This post was originally published on Smartplanet.com

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