On Tuesday, the United States Senate is scheduled to vote on an amendment offered by Senator Tom Coburn to eliminate both the blenders’ tax credit for ethanol (45 cents a gallon, a little more than $6 billion per year cost to the Treasury), as well as the tariff on imported ethanol (54 cents a gallon, mostly directed at keeping Brazilian sugar-based fuel out of the United States).
The ethanol program has been disastrous energy, environmental, and economic policy. Fortunately, Senator Tom Coburn is providing his Senate colleagues with an opportunity to end it.
The ethanol program is the only significant government program that features a trifecta of subsidies: a mandate to use a specific product (in this case, 36 billion gallons a year of ethanol), a refundable tax credit to those forced to buy and sell it (45 cents per gallon), and a tariff on competing imports that could lower the costs to motorists. In fact, the mandate has been such a lucrative federal program for the ethanol industry that other rent seeking industries, like wind and solar, are working to get the same deal for themselves. Preserving this program will only seek to strengthen the resolve of these and other political capitalists.
After several years and billions of taxpayer dollars, what has been the result of the ethanol program?
Less energy. Ethanol is only about two-thirds as powerful as gasoline (here). Additionally, it takes almost as much energy to make ethanol than ethanol itself provides (here). Ethanol also damages engines because it acts both as a solvent (deteriorating rubber and plastic in engine components) and it absorbs water, which tends to complicate the combustion process in many engines (here).
More pollution. In addition to requiring more fuel to go the same distance (directly countering the government’s mileage mandates), ethanol also produces more smog than gasoline on a per unit basis (here) and (here). Moreover, there is some substantial work that suggests that, when all factors are considered, ethanol results in greater GHG emissions (here).
Economic damage. Because the United States now burns its food for fuel, rather than export a significant portion of it as it has typically done, worldwide prices of grain have increased significantly. Wheat, corn, rice, sugar, and oilseeds have all experienced dramatic price increases since 2005 (here). These price increases push more people into poverty worldwide, resulting in an increase in avoidable mortality (perhaps as many as 190,000 deaths annually) and morbidity (here). Rather than tap America’s huge oil supplies the government will not let us touch on government lands, we immorally burn our food.
Political corruption. Part of opposition to Senator Coburn’s amendment is rooted in the notion that getting rid of subsidies is tantamount to a tax increase. This is patently absurd. A subsidy cleverly delivered through the tax code – like the blenders’ refundable tax credit for ethanol – is no different in economic or practical terms than a subsidy delivered through a direct grant or other handout. The unfortunate reality is that the code is littered with such subsidies; each one a testament to the power of political corruption rather than belief in the wisdom of consumer choice.
It is essential both to the restoration of fiscal sanity as well as the assertion of individual freedom in economic matters to remove these types of distortions from the tax code. A rigid insistence on a framework that treats the removal of special-interest subsidies (which virtually by definition apply to a very small set of taxpayers) the same as generally applicable tax increases is nonsensical and must be rejected.
We applaud Senator Coburn for his attention to this important matter and sincerely hope that none of his fellow colleagues sacrifice the end of these destructive policies on the altar of procedural nuance.