The real cost of the corn ethanol tax credit (VEETC)

Last night, the House Ways and Means Committee put the brakes on discussions to extend the Volumetric Ethanol Excise Tax Credit (VEETC), a government kickback for Big Oil to buy and blend corn ethanol that they are already required to purchase under the Renewable Fuel Standard. Why? Support for this unnecessary boondoggle is shifting, which isn't surprising at a time when schoolteachers are facing layoffs, and millions of unemployed Americans are seeing their jobless benefits slashed.

As Sasha wrote last week, a Congressional Budget Office study found that VEETC is costing taxpayers $1.78 at the pump to replace each gallon of gasoline with corn ethanol. Today she covers a new report from Bruce Babcock at Iowa State University that puts the cost of additional domestic ethanol above the RFS levels at $7 per gallon and refutes the ethanol industry’s claims that ending VEETC will cost jobs. All this for mature corn ethanol--a technology that’s more polluting than gasoline.

Meanwhile, thousands of teachers are facing layoffs in school districts around the nation, and the feds say they can’t come up with the funds to extend jobless benefits for 2.5 million unemployed Americans.  Putting an end to VEETC would help free up some of those desperately needed funds. Here’s the numbers:

If VEETC is extended at the current rate of $0.45/gallon, it will cost taxpayers $5.4 5.67 billion for just one year. Even the 1 year extension at the lower rate of $0.36/gallon which the House Ways and Means Committee was discussing last week, that’s still $4.45 4.54 billion wasted on a practice that’s already required by law. $4.45 4.54 billion is enough to:

  • Keep 62,300 63,500 teachers in schoolrooms when school starts this fall (using the federal calculation average of $71,429 per teacher)
  • Provide $400/week in unemployment benefits to nearly 430,000 472,500 out of work Americans for six months
  • Save 65,333 66,595 firefighter jobs (at a rate of $68,113 per firefighter) by supporting Federal Emergency Management Agency grants to cash-strapped cities

The corn ethanol industry claims VEETC will cost 112,000 jobs, but the Iowa State University puts this number at just 407 jobs and says that protecting these jobs with the VEETC would cost about $15 million per job per year. The schoolteachers, firefighters and jobless Americans who could use these funds right now are more real than the ridiculously inflated numbers that the industry keeps spitting out.

Clearly, the debate around the VEETC has shifted. The evidence is building, from the CBO report, Growth Energy’s proposal to phase out the VEETC, an early proposal by some on Ways and Means to limit a VEETC extension to one year and reduce it to $0.36/gallon, and today’s Iowa State University report. It’s no longer about what level to set the VEETC at, but rather when it should expire. Congress should stop handing out billions to two mature, mainstream, and polluting industries: big oil and old corn ethanol. The time to let VEETC expire is now.

Renewing VEETC will cost taxpayers:

$5.4 5.67 billion in 2011, if renewed at $0.45/gallon
$4.45 4.54 billion in 2011, if renewed at $0.36/gallon
$3.78 billion in 2011, if renewed at $0.30/gallon
$3.15 billion in 2011, if renewed at $0.25/gallon

Note that the Joint Tax Committee (JTC) nets out the ethanol import tariff, but even JTC’s estimate of a one-year extension at $0.36/gallon could mean keeping 52,920 teachers.

P.S. A little sloppy math lead to slighlty lower costs for the VEETC in the original version of this post. Actually extending the VEETC  would cost more as can be seen with the corrections above.