Experts lay out facts while coalition calls on Congress to end corn ethanol subsidies

Yesterday, the groups Taxpayers for Common Sense and the Grocery Manufacturers Association held a briefing on Capitol Hill featuring the Director of the Center for Agricultural and Rural Development (CARD) at Iowa State University, Bruce Babcock. The topic? The future of the Volumetric Ethanol Excise Tax Credit (VEETC), the government’s main corn ethanol tax credit, set to expire at the end of next month unless the corn ethanol industry can strong-arm Congress into extending it.

Today, a broad coalition of environmental groups, consumer advocates and fiscal conservatives co-sponsored this ad laying out the facts and calling on Congress to let the VEETC expire next month and instead focus on smart energy policies that will promote the development of truly sustainable biofuels that can meet our food, energy and environmental needs.

Back in July, I blogged about the key findings of CARD’s study examining the costs and benefits to taxpayers, consumers and ethanol producers of extending the corn ethanol tax credit and the impacts of eliminating the VEETC and ethanol import tariff on domestic ethanol production and jobs. At the briefing, Babcock reiterated the study’s conclusions: namely that if the VEETC were eliminated, ethanol demand would decline only modestly—his estimate is by roughly 600 million gallons or 5%—while the taxpayer savings would be huge—about $6 billion per year. 

The VEETC, CARD found, is not needed to meet biofuel consumption mandates in the Renewable Fuels Standard (RFS), since in the absence of tax credits, the RFS will remain the primary driver of domestic ethanol production, requiring oil companies to buy enough ethanol to meet increasing volume mandates. In 2011, these mandates will require 12.6 billion gallons of ethanol be purchased and blended into our fuel supply.

So what this mean for the pocketbooks of taxpayers?  A one-year extension of the VEETC would cost upwards of $8.50 per incremental gallon of ethanol production above and beyond what would already happen under the RFS.

And where do all these billions go? While recognizing that it is challenging to quantify exactly what share of VEETC value goes to ethanol producers vs. the oil companies, Babcock acknowledged that presently, oil companies are the biggest beneficiaries. 

What’s more, as the Financial Times and reported, and as we blogged about here, the U.S. is now a net exporter of corn ethanol, meaning more and more ethanol traders and blenders are now claiming the tax credit for ethanol they sell overseas, completely undermining the oft-repeated rationale for corn ethanol subsidies: namely that tax credits are needed to boost domestic use of corn ethanol to help end our oil dependency.

Now is a good time to repeal the VEETC, Babcock said in Q&A, since corn supplies are tight and there is little excess Brazilian capacity. Despite protectionist rhetoric to the contrary, the CARD study concludes that if the tariff were eliminated, there is little risk the U.S. will suddenly find itself flooded by sugarcane ethanol from Brazil.  CARD’s analysis of the Brazilian market shows that rapid growth in the flex-fuel vehicle fleet means the vast majority of Brazil’s ethanol supply will go towards meeting domestic demand, not exports.

The evidence is clear. Legislators as diverse as Sen. Feinstein and Sen. McCain have called for the end of the subsidy. Now it’s just time for the rest of Congress to stand up to the corn ethanol industry and let this 30 year old subsidy die.

UPDATE: Geoff Moody at GMA also blogged about the Hill briefing, including links to an updated version of CARD's study and the Advanced Economic Solutions report our coalition ad was based on.