The final straw? Corn ethanol tax credit being used as export subsidy

An article in yesterday’s Financial Times offers yet another scathing indictment of corn ethanol subsidies, detailing how the government’s main corn ethanol tax credit—originally passed to spur domestic use of corn ethanol—is instead being used to support exports. It's bad enough that the tax credit pays the corn and oil industries billions for producing and using ethanol they are already required to produce and use under the Renewable Fuels Standard (RFS). Now we learn that Congress' goal of promoting ethanol use here at home is being distorted to facilitate dumping ethanol overseas.

As the FT article explains, the Internal Revenue Service bars use of the tax credit for ethanol both produced and used outside the U.S., but allows it for U.S.-made fuel sold abroad. As a result, ethanol traders and blenders have been claiming the tax credit in increasing numbers, creasing a “rising tide of outbound shipments”.  Indeed domestically produced corn ethanol is being exported in record volumes, with U.S. exports of corn ethanol more than doubling year-over-year, making the U.S. a net exporter in 2010. These exports, the article says, “stand in contrast to the goals of U.S. biofuels policy, which seeks to reduce dependence on imported fossil fuels in part by offering tax credits to companies that blend ethanol with petrol.”  

Why does this matter?  Going back to the late 70’s, the government has basically bribed oil companies to use ethanol. The bribe presently comes in the form of the Volumetric Ethanol Excise Tax Credit (VEETC), which pays oil companies 45 cents for every gallon of ethanol blended with gasoline, costing taxpayers $20 billion over the last four years and $6 billion this year alone.

How has the corn ethanol industry justified this?  By arguing that corn ethanol delivers a clean, homegrown alternative to foreign oil and therefore deserves continued government support in the form of a fourth decade of subsidies and an import tariff to protect domestic producers from foreign competition.

But now the proverbial cat seems to be out of the bag: the VEETC is just a massive giveaway to the ADMs, BPs and Exxons of the world, who are increasingly using it as an export subsidy.

With it now clear that corn ethanol is worse than gasoline, both in terms of its impacts on global warming and for the air we breathe, the news that this tax credit is subsidizing exports undermines the argument that ethanol is needed to help end our oil dependency. Not only is the VEETC wasteful, but the scarce taxpayers dollars used to fund it could instead go towards helping develop the new and cleaner advanced biofuels we need to really bolster our energy independence and meet our climate challenges.  I hope this latest news will give Congress all the reason they need to say no to extending the corn ethanol tax credit and let it expire next month.