Out with the old, in with the new; bidding farewell to the corn ethanol tax credit

I turn 30 this weekend. That means that for my whole life, the corn ethanol industry has been receiving federal subsidies. From the Energy Tax Act of 1978, which gave ethanol its first tax exemption, to the American Jobs Creation Act of 2004, which put in place the Volumetric Ethanol Excise Tax Credit known as the VEETC, every gallon of corn ethanol produced over the last three decades has directly benefitted from taxpayer support in one form or another.

That ends at midnight on Saturday, December 31st when the VEETC will finally expire, along with the tariff on imported ethanol.

Not only is this a major victory for American taxpayers, who have been stuck with the multi-billion dollar bill for a tax credit we’ve long known doesn’t create any additional domestic ethanol production or jobs, but it marks an important turning point in righting our biofuels policies.

The vast majority of Americans think we need clean and renewable alternatives to dirty and limited fossil fuels. Instead of investing billions in the dirty biofuels of the past, we can now begin a rational discussion about the policies we need to commercialize real, low-carbon and sustainable alternatives to oil—alternatives that we can produce right here in the U.S. and that will never run out.

Two years ago, the conventional wisdom was that that Big Ethanol was too powerful to take on and would get the VEETC extension it was lobbying for. But that didn’t stop a large and diverse coalition from pushing back, calling out corn ethanol’s polluting record, its role in driving up food prices, and the wastefulness of paying oil companies to blend corn ethanol into our gasoline when federal mandates already require them to do so. It didn’t hurt that study after study came out showing just how much corn ethanol subsidies were costing us and just how little we were getting in return, or that the industry itself finally began to admit what we already knew: that corn ethanol was a mature technology that didn’t need anymore subsidies.

It’s actually fairly amusing to take a page out of Jon Stewart’s book and contrast industry statements from 2010—when corn ethanol lobbyists were issuing dire warnings that equated ending the VEETC with “pushing the industry off a cliff”—with statements over the last few months, as corn ethanol proponents pulled a sharp 180 and started telling anyone who’d listen just how much they didn’t need or want the VEETC.

Here’s Renewable Fuels Association President Bob Dinneen in July of 2010:

“Now is not the time to add uncertainty and complexity to the energy tax debate. Because the EPA has failed to act to allow higher level ethanol blends, margins in the industry are razor thin. Losing the tax incentive now will shutter plants and cost tens of thousands of jobs.”

And here’s American Coalition for Ethanol Executive Vice President Brian Jennings on that same day:

“If Congress fails to extend ethanol tax incentives beyond 2010, more U.S. jobs will be lost and energy independence will be reversed, two dangerous consequences that America cannot afford.”

Compare that to the industry’s current spin, like this statement from Poet CEO Jeff Broin just a few weeks ago:

"Ethanol is now able to compete with gasoline without a tax break…Today, ethanol is so competitive that we have become a major exporter, even to Brazil."

And the National Corn Growers Association last month:

“VEETC expires about a month from now, and corn growers and the ethanol industry have long agreed to let it expire and have since stopped fighting for its renewal...Frankly, we left this game last quarter because there are other, smarter ways to support ethanol, especially in today’s deficit-prone political world.”

You’d almost think someone forced them to spend millions lobbying for a VEETC extension!

But in these partisan times, nothing spoke louder than a 73-27 vote in the U.S. Senate to end both the VEETC and import tariff.  The message was clear: American taxpayers can no longer afford to line the pockets of big oil companies and old corn ethanol plants while getting nothing in return but dirtier air, dirtier water, and higher prices at the grocery store. 

The VEETC subsidized the best and worst gallons of ethanol alike, with no environmental performance requirements. This was not only wasteful, but came at the expense of developing the new and cleaner biofuels we need. To get the first billion gallons of advanced biofuels to market, we’ll need the right mix of policies that support the production of responsibly-grown energy crops, reward producers for creating biofuels that protect our climate and natural resources, and ensure that rigorous sustainability standards and verification systems are integrated into corporate and government biofuels purchasing contracts.

We can and must move beyond corn ethanol. Ending the VEETC means we’ve taken the first critical step in that direction. For more on where we need to go from here—and how NRDC thinks we can get there—check out my colleague Nathanael Greene’s blog.