A few months back, I blogged about USDA’s release of a roadmap illustrating the agency’s plans to help make ethanol a national industry. It’s certainly a positive sign that USDA is committed to investing in infrastructure and technology that would move us beyond corn ethanol and toward meeting the goals of the Renewable Fuels Standard, which mandates the use of 36 billion gallons of ethanol and other biofuels (including new and cleaner biofuels, such as those made from dedicated “energy crops” like willow and switchgrass) by 2022. However, this transition cannot happen unless we seriously reform our ethanol policies and stop pumping billions per year in taxpayer dollars into subsidies for the corn ethanol industry through the Volumetric Ethanol Excise Tax Credit (VEETC).
Last week, NRDC released a new fact sheet on the VEETC, highlighting how our government’s biggest incentive program for biofuels has almost exclusively supported the production of corn ethanol which, when all direct and indirect costs are added, creates more global warming pollution than the oil it is supposed to replace, and has failed to incentivize the development of cleaner and more cutting edge biofuels like cellulosic ethanol. As a result, the VEETC has not only concentrated the ethanol industry in just a handful of states, but siphoned scarce resources away from more competitive biofuel technologies that create far less pollution and would allow more than double the number of U.S. states to meaningfully participate in ethanol production.
Many states have substantial biomass resources that could be sustainably harvested for conversion into biofuels produced from cellulosic biomass, such as the leaves, stems and stalks of plants, while protecting or even improving soil, water, and wildlife habitats. Unfortunately, in terms of state participation, the ethanol industry today looks like a far cry from the national industry USDA envisions. The map below shows the distribution of VEETC value across states by production in 2009. As the map makes clear, corn ethanol tax credit benefits today are highly concentrated, with only those 11 states highlighted in yellow seeing more than $100 million in VEETC benefits.
Figure 1: 2009 State Distribution of VEETC Value by Production
However, if today’s VEETC was redirected to support cellulosic biofuels, it would more than double the number of states participating in the biofuels market in a meaningful way. If the $5 billion in VEETC subsidies we gave to corn ethanol in 2009 was instead redirected in support of cellulosic ethanol, 23 states would see more than $100 million in annual benefits.
Figure 2: State Distribution of Cellulosic VEETC Value
This is what a national ethanol industry looks like and this is what our biofuels policies should be supporting. We cannot afford to continue spending billions in taxpayer dollars propping up an old, polluting technology instead of the new, cleaner and more competitive biofuels we need. Congress must let the VEETC expire at year-end and replace it with a smarter, cheaper, and greener biofuels tax credit that rewards real environmental performance, saves taxpayers money and helps speed the transition to the kinds of biofuels that can make a real contribution to our energy security, and thus do more to generate both reinvestment and new investment across the U.S.