US looks ahead after ethanol subsidy expires

Jan 15, 2012 by Rob Lever
US lawmakers ended the credit of 45 cents per gallon refiners get for blending ethanol
A sticker on the windshield of a Chevrolet Impala promoting the General Motors "flexible fuel" technology is on display at the New York International Automobile Show. After a series of bitter political fights, the US Congress has allowed a subsidy for ethanol fuel to expire at the end of 2011, ending a program harshly criticized by environmentalists and others.

After a series of bitter political fights, the US Congress allowed a subsidy for ethanol fuel to expire at the end of 2011, ending a program harshly criticized by environmentalists and others.

By taking no action, US lawmakers ended the credit of 45 cents per gallon refiners get for blending ethanol, which in the US market is made mostly from corn, into gasoline. Also terminated was a tariff on imports of 54 cents per gallon which was criticized by Brazil, a producer of sugar cane-based ethanol.

The programs were in place since the 1980s as a means of curbing US use of imported petroleum.

But over time, criticism grew that growing ethanol use diverted too much corn from food to fuel, and led to environmental and land use problems, by adding to incentives to plant more corn. The program also cost taxpayers some $6 billion annually.

"The end of this giant subsidy for dirty corn ethanol is a win for taxpayers, the environment and people struggling to put food on their tables," said Michal Rosenoer of Friends of the Earth.

" is extremely dirty. It leads to more climate pollution than conventional gasoline, and it causes deforestation as well as agricultural runoff that pollutes our water."

"I'm gratified that these two subsidies were terminated, I've been advocating this for five to six years," said C. Ford Runge, an economist specializing in agriculture policy at the University of Minnesota.

"I think the reason they were ended is that the industry concluded they were of no particular utility. Otherwise they would not have given them up without as much as a squeal."

Matt Hartwig, spokesman for the Renewable Fuels Association which represents ethanol makers, acknowledged that the industry did not press for extending the subsidies, and argued the program was "a good model" for a way to get a new industry started.

"We believe a subsidy like this could be a good policy if implemented correctly, to build an industry, and then to fade away when the industry stands on its own two feet," he said.

He added that now is "a good time for this tax incentive to go away," but that "this contrasts with the petroleum industry which still benefits from a tax subsidy that was put in the tax code in 1916."

Analysts say the end of the subsidy may have boosted gasoline prices in early 2012, by hiking the price of ethanol, which generally makes up 10 percent of gasoline.

Yet Runge and others say the ethanol industry get ongoing support from government mandates under a law known as the Renewable Fuel Standards Act, which requires 7.5 billion gallons of biofuels to be used in 2012, and increases that to more than 20 billion by 2022.

By mandating use of certain fuels, Runge said the law "creates a guaranteed market that stimulates excess investment."

Deficit hawks and conservatives have joined environmentalists in attacking the subsidies and mandates which distort the market.

Aaron Smith of th University of California, Davis, says the mandate "is causing corn demand to outstrip supply by more and more each year, creating a vulnerable market in which even the slightest production disturbance will have devastating consequences for the world's poor."

Even though the law seeks to encourage use of more environmentally friendly biofuels derived from waste, algae and plant materials, Runge said that "the experience with corn represents a cautionary tale."

Doug Koplow of the policy consulting firm Earth Track said that the mandate is effectively another kind of subsidy for ethanol, and warns that it may be difficult to come up with new alternative fuels without adverse environmental impacts.

While there has been some enthusiasm about biofuels from switchgrass, cornstalks and algae, Koplow said, "I think people are painting that as too rosy a picture."

Even these alternatives "will require an enormous amount of land, and crops produced on a large scale. They will require chemical or water inputs," Koplow said, adding that he sees no "single solution" on fuels.

Hartwig of the industry group said every producer is seeking to diversify beyond corn "to displace as much imported oil and domestic oil as we can."

This includes biofuels from solid waste, algae and other "cellulosic" sources seen as more environmentally sustainable.

But he said it is difficult to launch these efforts without government support.

"We think it makes sense to extend tax breaks for cellulosic (biofuels) to allow them to attract investment and begin producing fuel," Hartwig said, saying that such a temporary incentive can be good policy.

"We think the incentive that just expired is a good example of how a tax break can work," he said.

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User comments : 36

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dogbert
3.3 / 5 (17) Jan 15, 2012
We should never have funded corn to ethanol production. It is well past time the funding should end.

Now, if we can just stop the stupid mandates on ethanol use ...
ryggesogn2
2.2 / 5 (13) Jan 15, 2012
EPA mandates oxygenates in fuels. MTBE was the choice of Chevron as they manufactured it. Unfortunately it's toxic and miscible in water and was leaking into ground water supplies.
Ethanol was the mandated replacement nationwide. At the time the law was enacted to replace MTBE, the closest supply of ethanol to the west coast was in SD.
I agree an end to ethanol subsidies to growers and tariffs on imports should end and should never have been started.
But I think the involvement of govt regulations should not be excluded in the discussion.
dogbert
1.7 / 5 (22) Jan 15, 2012
The EPA should be eliminated. Mandates should come from the legislative process, not a government agency.
dougeatfresh
3.7 / 5 (11) Jan 15, 2012
The EPA should never be eliminated.
Congressmen have enough to deal with as is. Could you imagine congress being responsible for regulating which chemicals companies can use, etc.
The EPA is there so that science can be left to people with a background in it.
dogbert
1.8 / 5 (19) Jan 15, 2012
The EPA has classified carbon dioxide, a gas essential for life on this planet, as a pollutant.

The EPA is there so that science can be left to people with a background in it.


If they were acting in a scientific manner instead of a political manner, your statement might have some utility. As it is, they have degenerated into a political tool and have forfeited their utility.
LENR4you
1.2 / 5 (13) Jan 15, 2012
LENR will change everything.
http: technologygateway.nasa.gov/media/CC/lenr/lenr.html
Cars will have their LENR-Stirling-Electric-Generator on board.
No combustion anymore!
Your LENR4you
Skultch
4.4 / 5 (7) Jan 15, 2012
Hopefully this means many farmers will go back to growing hops again and my double IPAs will get cheaper.
bewertow
4.7 / 5 (6) Jan 15, 2012
Planting corn for fuel is a terrible idea. I would rather have oil extracted from underground than to cut down forests to grow fuel.
dogbert
2.8 / 5 (15) Jan 15, 2012
bewertow,
Planting corn for fuel is a terrible idea. I would rather have oil extracted from underground than to cut down forests to grow fuel.


Its worse than that. We are using oil/natural gas to plant, fertilize, transport, ferment and distill corn ethanol already and to transport the finished product. We are also using tremendous amounts of water extracted from deep aquifers to make the ethanol. These aquifers, when depleted, will impact on all of us.
Parsec
3.9 / 5 (7) Jan 15, 2012
The EPA should be eliminated. Mandates should come from the legislative process, not a government agency.

What does the EPA have to do with this discussion? The EPA was in no way involved. Most EPA scientists in fact believe that ethanol subsidies have always been stupid policy.

I think what you are talking about eliminating is the clean air and water acts that Congress passed in the 1970's. The EPA was set up to enforce those laws.

I can tell without doubt that the air and water are vastly improved since then. Do you really wish to go back to a time when industrial poison's killed tens of thousands of people (or more) every year?
Parsec
3.9 / 5 (7) Jan 15, 2012
The EPA has classified carbon dioxide, a gas essential for life on this planet, as a pollutant.

The EPA is there so that science can be left to people with a background in it.


If they were acting in a scientific manner instead of a political manner, your statement might have some utility. As it is, they have degenerated into a political tool and have forfeited their utility.

You have no science behind your claim, while the EPA has abundant evidence to support it. You are saying that YOUR political opinion should overrule the science. If they were to listen to public opinion instead of the science, then I would agree they have lost their utility. But you are arguing against yourself.
Cave_Man
4.5 / 5 (4) Jan 15, 2012
It's good to see someone out there can still think with all the fresh acetaldehyde in the air. Why is there never a mention of the trade-off between CO2 (non poisonous) with acetaldehyde one of THE WORST KNOWN COMPOUNDS FOR HUMAN HEALTH AND THE ENVIRONMENT?

Why do you never hear about it? Is it because this isn't about pollution it's about greedy money fuckers who just want more corn holes to fuck?
Lets Not Pretend
5 / 5 (7) Jan 15, 2012
Corn producers are still receiving massive subsidies. The main reason the ethanol subsidy was dropped was because it wasn't needed. Existing corn subsidies, high gas prices and mandatory blending are enough to prop up the industry.
blip
4.7 / 5 (3) Jan 15, 2012
I'm assuming with the 45 cent per gallon the refiners are not getting anymore means we will see something else at the pumps instead of the 10% ethanol we have now? If so what?
ryggesogn2
2 / 5 (12) Jan 15, 2012
"The Clean Air Act requires use of oxygenated gasoline in areas where winter time carbon monoxide levels exceed federal air quality standards."
http://www.epa.go...ndex.htm

EPA has nothing to do with it?
kochevnik
2 / 5 (3) Jan 15, 2012
acetaldehyde one of THE WORST KNOWN COMPOUNDS FOR HUMAN HEALTH AND THE ENVIRONMENT?
Vinegar? Could auto exhaust be used to make salad dressing?

We are using oil/natural gas to plant, fertilize, transport, ferment and distill corn ethanol already and to transport the finished product. We are also using tremendous amounts of water extracted from deep aquifers to make the ethanol. These aquifers, when depleted, will impact on all of us.
A stunningly rational supposition.
antialias_physorg
4.8 / 5 (5) Jan 16, 2012
Why is there never a mention of the trade-off between CO2 (non poisonous) with acetaldehyde one of THE WORST KNOWN COMPOUNDS FOR HUMAN HEALTH AND THE ENVIRONMENT?

Because it's a matter of concentration. While acetaldehyde may be poisonous it isn't present in the kinds of concentrations that have an impact on, well, anything. CO2 on the other hand has a very real and measurable impact on the climate. It may not poison an individual - but it's effect is enough to already start wiping island states off the map.

So the tradeoff is already being made: Take care of stuff that is dangerous to many people first. Then take care of stuff that is dangerous to only a few.
jzent
not rated yet Jan 23, 2012
I raise lot of corn for ethanol. Do any of you farm? Do you think we just sit back and collect government checks all day? You complain you're so poor, there are no jobs, boo hoo. We can't even find good help because people are so lazy but besides the point. We have a crop that grows like crazy, stimulates the economy, and gives back a resource. You allow a farmer to do well, the entire communtity grows. Ethonal does not account for a large portion of the overall corn grown in america and what else do you want us to grow up here? It's too short a growing season to grow most things. Do you think we can change our crops grown like you decide to change what you grow in your little gardens? I've also worked the oil field. It takes thousands of gallons of refined fuel to get more unrefined fuel out of the ground. It's not free either. Please, when you all stop driving your cars and heating your homes come back and we'll talk...or just sit in your city bubble and complain.
ryggesogn2
1 / 5 (1) Jan 23, 2012
@jzent
I was raised on a farm.
Why do you want to depend upon the govt to subsidize your crops?
New Zealand has slowly eliminated their subsidies and they are prospering.
BTW, how hard are you pushing your land (is it your land?) to raise corn? Are you rotating with alfalfa or any other crop?
jzent
not rated yet Jan 23, 2012
We have a very strict crop rotation and push every acre. And yes we own our land. Gov subsidies are a joke when one harvester costs a half mil and we have two. Why shouldn't we be subsidized? Germany knows what its like to starve and the consequently subsidize the hell out of their farmers. Do we have to always have to learn the hard way? Agriculture is domino number one, its what this world relies on. you help stand that up straight and the rest of the economy follows. Ethonal creates huge economy stimulation and gives back. What more do you people want?
Skultch
not rated yet Jan 25, 2012
jzent, you WILL grow my hops if you know what's good for you!!!! ;) ;)
ryggesogn2
3 / 5 (2) Jan 25, 2012
Why shouldn't we be subsidized?

Why should you?
New Zealand stopped its subsidies and their farmers are prospering.
Subsidies distort the market.

jzent
not rated yet Jan 26, 2012
Hahaha, well I guess when you put it like that skulch then what choice do we have. Anyway, there are flights going to new Zealand every day ryg. I doubt anyone is going stop you from packing your shit and leaving.
ryggesogn2
1 / 5 (1) Jan 26, 2012
jzent, govt giveth and taketh away.
Why are farmers so afraid of competing?
People always need to eat.
Skultch
not rated yet Jan 26, 2012
Why shouldn't we be subsidized?

Why should you?


insurance for our food supply
ryggesogn2
1 / 5 (1) Jan 26, 2012
Why shouldn't we be subsidized?

Why should you?


insurance for our food supply

How do subsidies guarantee food supply?
Many believe ethanol subsidies threatened food supplies.
Philippines subsidizes rice but must import rice as the subsidies hinder domestic production.
Do you think Singapore is worried about its food supply? It has no land for agriculture.
Many turd world nations have restrictive ag policies and are short of food, but not for lack of quality land.
Skultch
not rated yet Jan 26, 2012
I'll let the actual farmer answer those questions, but it isn't too hard to imagine a subsidy allowing a small farm to make it through a bad crop year without having to go bankrupt, therefore, a farm is being harvested the next year that would have otherwise not even been planted. Then multiply that by whatever if it's an entire regional drought or infestation. I have no idea if that's really the written intent of the subsidies and/or if the subsidies could actually accomplish that kind of insurance as currently priced.
jzent
not rated yet Jan 26, 2012
I've traveled the world a few times over during my 10 year air force flying career and we eat the cheapest compared to anywhere else you'd actually want to live so what's with all the complaining. The oil companies receive way more subsidies then farmers ever will. And i don't remember ever having to go to Iraq to protect our corn industry.
ryggesogn2
1 / 5 (1) Jan 26, 2012
Skultch, insurance is available for bad crop years.

Subsidies are guarantees the govt will buy your crops at a certain price.
Ethanol was subsidized by restricting cheaper Brazilian imports and guaranteeing prices for ethanol producers.
Dairy is still subsidized in many regions keeping milk prices high.

"Bruce Babcock, professor of economics at Iowa State University, has calculated that eliminating farm subsidies would have virtually no effect on food prices."
"without subsidies, American farm products would be replaced by imports, leaving the United States dangerously dependent on foreigners for food. However, the United States currently grows more food than it needs to feed itself and exports a quarter of its production."
"Two-thirds of all farm production-including fruit, vegetables, beef, and poultry-thrives despite being ineligible for farm subsidies."
http://www.herita...mers-too
ryggesogn2
1 / 5 (1) Jan 26, 2012
"Only one-third of the $240 billion in annual farm production is eligible for farm subsidies. Five crops-wheat, cotton, corn, soybeans, and rice-receive more than 90 percent of all farm subsidies. Fruits, vegetables, livestock, and poultry, which comprise two-thirds of all farm production, are generally not subsidized at all.[29] This is important for two reasons.

First, those who assert that the absence of farm subsidies would cause massive poverty, rapid price fluctuations, and the eventual demise of the agricultural industry have not persuasively explained why the two-thirds of the industry that operates without subsidies has experienced none of these problems."
http://www.herita...mers-too
kochevnik
1 / 5 (1) Jan 26, 2012
Subsidies used to make sense when farms were family operations, as a steadfast against market volatility. Now that they are all multinational conglomerates like Prudential Insurance, ConAgra, Cargill, Monsanto etc. the subsidies are pure corporate welfare. These corporations don't give a rat's ass if populations are thriving or starving. They only care how much government money they can suck from taxpayers and how many costs they can externalize like runoff pollution, soil depletion and water rationing. The family farmers now live in the cities or in company towns.
ryggesogn2
1 / 5 (1) Jan 26, 2012
Subsidies used to make sense when farms were family operations,

No, they did not. It subsidized bad farmers.
chuck1955
not rated yet Feb 08, 2012
If ethanol is cost effective,why does it cost 30% more to use e85 in flex fuel vehicles vs non ethanol gas.Go to fuel economy.gov website and check it out.Every vehicle is pretty much comparible on these numbers.If ethanol is saving us so much money remove the mandates and let it stand on its own. If its a better product and cheaper let people make the decision on their own.
ryggesogn2
1 / 5 (1) Feb 08, 2012
Sucrose from beets and cane were subsidized in the US forcing candy manufacturers to leave the US and made high fructose corn syrup from ADM cheaper for use in soft drinks in the US. In the r.o.w. sugar was very cheap and was used by Coke, Pepsi, etc to make soda.
Jeddah built a special port facility to offload sugar from Australia for their Pepsi plant
Now consumers are getting the word and demanding sugar. Coke from Mexico made with sugar is sold in Whole Foods type stores for a premium price. Pepsi made some products with sucrose.
Subsidies distort markets for the benefit of some and detriment for all.
ryggesogn2
1 / 5 (1) Feb 08, 2012
"Europe's farms cost taxpayers billions of euros in subsidies each year, and EU agricultural inspectors are turning to technology to improve their patchy record on preventing fraud and waste."
"Wine-growers get as much as 10,000 euros ($13,000; £8,300) per hectare in subsidies for digging up uncompetitive vines - a scheme to prevent new EU "wine lakes" caused by overproduction. "
http://www.bbc.co...16545333
Who do the farmers 'work' for, themselves or the state?
chuck1955
not rated yet Feb 08, 2012
We are in an energy shortage.We are not even breaking even in cost.We are using two parts of energy and not evan breaking even.There should be a substancial gain to make this worth while.Let alone we are driving up food cost causing world wide unrest with high food cost.

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