Ethanol Subsidy Comes to an End

RFA spokesperson: "Marketplace has evolved; tax incentive less necessary"

WASHINGTON -- Gasoline could cost 4.5 cents a gallon more starting as early as this week because Congress declined to renew the 30-year-old federal subsidy for ethanol, letting it expire Sunday, said USA Today.

How much the end of the subsidy could add to gasoline prices, and how soon, has yet to be seen, the report said. Ethanol blenders got a 45-cents-a-gallon tax credit, which amounts to 4.5 cents for the amount blended into each gallon of E-10 (gasoline mixed with 10% ethanol) fuel.

Oil prices and ethanol stocks are in flux. And the impact of another move by Congress--dropping the 54-cents-per-gallon tariff on ethanol imports--is also unknown.

Brazil is a leading global producer of ethanol made mostly from sugar cane. In the United States, ethanol primarily is made from corn. That has made the ethanol subsidy controversial because of allegations that it raised food prices. The estimated $6 billion annual cost of the subsidy also has added to the federal deficit.

The end of the subsidy, however, has barely caused a ripple among ethanol backers or corn producers, according to the report. Corn prices remain high because of healthy exports, especially to China. E-10 is now standard, and more demand for ethanol is guaranteed by an escalating federal alternative fuel mandate requiring more use of it.

"We may be the only industry in U.S. history that voluntarily let a subsidy expire," Matthew A. Hartwig, a spokesperson for the Renewable Fuels Association, a trade group for ethanol producers, told the New York Times. "The marketplace has evolved. The tax incentive is less necessary now than it was just two years ago. Ethanol is 10% of the nation's gasoline supply."

In response to a question about how the loss of the subsidy might affect prices and supply, Hartwig said: "We don't expect the price of corn to fall or rise just because the tax incentive goes away. We will produce the same amount of ethanol in 2012 as in 2011, or more."

U.S. Representative Jeff Flake (R-Ariz.), said, "With record deficits and a ballooning national debt, it was ludicrous to expect taxpayers to pay billions to prop up a mature industry that should be able to fend for itself."

U.S. Senator Dianne Feinstein (D-Calif.), said the ethanol industry had enjoyed "a trifecta, a triple crown" of federal support.

Federal law requires that certain minimum amounts of renewable fuels like ethanol be blended into gasoline. Refiners received the tax credit for doing so. And the government imposed a tariff on imported ethanol, protecting the domestic industry.

The tariff, like the tax credit, expired Saturday. But the requirement to use increasing amounts of ethanol in gasoline continues.

U.S. Senator Charles E. Grassley (R-Iowa), a leading advocate for ethanol, said the use of ethanol had reduced retail gasoline prices and America's reliance on foreign oil.

And U.S. Senator John McCain (R-Ariz.), denounced the idea. "Not content with government support to subsidize ethanol, protect it from competition or require its use, lobbyists now want taxpayers to pay for the construction of pumps and holding tanks at retail gas stations," he said.

Hartwig told the newspaper that such spending was "a wise investment for the government" to help meet the expected demand for higher ethanol blends.

Marlo Lewis Jr., a senior fellow at the Competitive Enterprise Institute, a public policy group that advocates free market principles, was active in the coalition opposed to the tax subsidy.

"Savvy people told me that this was a quixotic endeavor, that we would never see the end of the ethanol tax credit," he told the Times. "But we pulled it off. Congress concluded that this was a special-interest giveaway the country could no longer afford."