The proof is in the profits: it's time to end corn ethanol subsidies

When Valero Energy Corporation, the country’s largest independent oil refiner and top corn ethanol producer, told investors last summer that it was going to be a good year, they weren’t kidding. An article in today’s Des Moines Register confirmed just how good a year Valero has had, with the company reporting $139 million in operating profits from its ethanol production facilities in the U.S. for the first three quarters of 2010, up from $71 million last year. And Valero is not alone. A recent Bloomberg article highlighted how even two-year highs in the price of corn, the main feedstock for ethanol production, have not dampened profits across the domestic ethanol industry.

According to the article, healthy profits have been the result of increased ethanol demand, rising prices for dried distillers grains, a byproduct of the fermentation process by which corn is made into ethanol that livestock farmers use as feed, and big declines in the price of natural gas, used to power the ethanol production process. “If you’re not making money in ethanol right now”, Bloomberg quotes a market analyst as saying, “you have a problem with your production process”.

Now let’s be clear. There is absolutely nothing wrong with making profits. What’s wrong is a mature industry like corn ethanol continuing to lobby aggressively for more taxpayer support after three decades of subsidies, with dire warnings of plummeting corn ethanol prices and domestic production levels if tax credits are not extended, at the same time as top ethanol manufacturers continue to report hundreds of millions in profits.

But even Valero knows that corn ethanol tax credits are unnecessary. I blogged in July about how the company’s Executive Vice President for Corporate Development and Strategic Planning, Gene Edwards, boldly went where few in the industry are willing to go, telling investors that removing the VEETC—the Volumetric Ethanol Excise Tax Credit, the government’s largest biofuels incentive, which today pays blender of ethanol $0.45 cents for every gallon of ethanol they blend in with gasoline and will cost taxpayers $6 billion next year alone—would have no impact on ethanol prices or domestic production, and assuring them that they would “not see blending decrease by one barrel” if the tax credit was allowed to expire at year-end.

This was a telling admission at the time from a major industry insider, but industry-wide profits, it seems, speak for themselves. With the Renewable Fuels Standard (RFS) in place, which study after study has found is the primary driver behind domestic corn ethanol production, margins for ethanol production improving on every front, and blending margins already favoring blending ethanol with gasoline, it’s clear that the corn ethanol lobby’s case gets harder and harder to make—at least with a straight face. The proof is in the profits: the time has come to let the wasteful VEETC expire at year-end and for the corn ethanol industry to stand on its own two feet.

About the Authors

Sasha Stashwick

Senior Advocate, Energy & Transportation and Food & Agriculture programs

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