Becky Fenger Fenger PointingDECEMBER 1, 2010

The price of supporting ethanol

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On October 21, a coalition of free-market groups sent a letter to Congress urging them to end the tax breaks and tariff protection for ethanol. These goodies are set to expire on New Year's Eve, and they should die an ignominious death.

Don't underestimate the lobbying power of the domestic ethanol industry, however. Currently it enjoys a 45 cents per gallon "Volumetric Ethanol Excise Tax Credit," which costs taxpayers $5 billion to $6 billion annually, reports the Competitive Enterprise Institute, and a 54 cent per gallon protective tariff. This stops lower-cost Brazilian ethanol from competing in U.S. markets.

"Congress has a rare opportunity to avoid $25-30 billion in new deficit spending, ease consumers' pain at the pump, and scale back political manipulation of energy markets by literally doing nothing," the coalition wrote in their letter. What's not to love here?

There is plenty to hate about the ethanol subsidies. Can you blame a starving world for watching in dismay as Ugly Americans shove ears of corn into their fuel tanks? The Detroit News reports that environmental organizations, the meat and grocery industry, and anti-poverty groups have all come out against the ethanol subsidies. Remember when there were riots in Mexico because the decrease of available corn for food instead of fuel caused the price of tacos to soar?

How I would love it if there could be a rotation system of which states held the first presidential primaries. That seems to be the only way to rid our nation of the expensive farm supports that go to rich landlords like journalist Sam Donaldson. If Iowa no longer held the distinction of the first state in which to win, candidates wouldn't have to promise farmers a set price for crops or, worse yet, pay them not to cultivate their fields. This disgrace has gone on long enough. Archer Daniels Midland Corporation is not a charity case, but it is royalty in the corporate welfare game.

Naturally, with so much moola at stake, the domestic ethanol industry is pulling out all the stops to keep the dollars flowing. One tactic is to scare an already scared workforce by claiming that expiration of the tax credit would lead to massive job losses of over 100,000 workers. Bless Bruce Babcock, an agricultural economist at Iowa State University, for completing a study that concluded the job losses would be fewer than 500. That's because jobs in the ethanol industry are protected by the Renewable Fuels Standard which, we are told, mandates annual biofuel production and will only continue to increase over the next ten years.

Keeping foreign ethanol out of the United States should be a punishable offense. We now know that sugarcane ethanol produced in Brazil is a much cleaner fuel and has been produced historically at a much lower cost. Brazil has a competitive advantage, the Detroit News reports, because sugar grows much easier in warmer climates south of the equator and yields more fuel per acre. Banning cheaper foreign imports simply keeps our domestic ethanol prices inflated.

If you are a sugar addict like I am, you too can disparage the price supports for our sugar that keeps the price of feeding a sweet tooth artificially high. Government meddling never turns out well for the taxpayer.

Brian McGraw, who wrote the article urging the expiration of our ethanol subsides, states the case well when he says: "Remember that no government mandate, no matter how stringent, can impose by fiat more efficient energy sources. And using tax money to gamble with new technology is not any government's strength."  Here, here!

Now,  I only wish the Arizona Corporation Commission would take that to heart.