Ethanol subsidies targeted for budget savings?

posted at 3:35 pm on April 18, 2011 by Ed Morrissey

With sacred cows like Medicare and Medicaid suddenly up for discussion in terms of budget cuts, Republicans in Congress want to take aim at another — and it’s going to be a toss-up to see which draws more demagogic fire.  The GOP wants to defund ethanol subsidies, which would save $60 billion in ten years, and Senator Tom Coburn wants to end a critical tax credit as well:

The federal government has given a nearly $6 billion tax credit to American producers of the bio-fuel every year since 2005, and doled out additional billions in special grants and loan guarantees for more than 30 years.

Now a growing number of lawmakers, including several from agricultural states, say it’s time for at least some of the special treatment to end.

“I’ve talked to ethanol people. I’ve said that this is something that’s got to make economic sense,” Indiana RepublicanSen. Dan Coats told ABC News of the tax credits he’s previously fought to defend. …

Oklahoma Sen. Tom Coburn, who’s part of the bipartisan “gang of six” working to solve the budget crisis, has proposed immediately eliminating the 45-cents-a-gallon tax credit. The move would, in effect, force ethanol producers to pay more in taxes and give the government a $4 billion boost in revenue through the end of this year.

“Ethanol subsidies are a spending program wrongly placed in the tax code that increases the burden of government, keeps tax rates artificially high, and forces consumers to pay more for food and energy,” Coburn said in a letter last month in response to criticism from an anti-tax group.

Assuming that the tax credit stays in place, it will have cost us almost $31 billion since it began in 2005.  Even if the credit made sense, a GAO report from March explained that the time has passed for it.  The industry needed to make the product price competitive while it invested heavily in its capital infrastructure, but that investment has come and gone.  Now those credits work as a purely winner-picking mechanism that makes ethanol falsely competitive with other energy sources.

But can the GOP summon the courage to end the program?  The White House will almost certainly cast this as an attack on farmers, and some farmers may well agree.  Iowa voters will put pressure on Republican presidential candidates to oppose the cuts, as the subsidies and tax credits benefit farmers while driving up food prices.  Ben Nelson in Nebraska and Claire McCaskill in Missouri may not have much chance of winning another term in the Senate, but they may start flogging the subsidies as a lever to rescue their prospects among rural voters. Even apart from the farm vote, Barack Obama will undoubtedly hammer Republicans as tools of Big Oil attempting to put an end to the green energy Nirvana that awaits just around the next big-government-program corner.

We should be cutting ethanol subsidies — and a lot of other subsidies as well.  This is as good a place to start as any.

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Ag Production Engineer (ie farmer) here

Cut ethanol, cut farm ,subsidies, time is passed. I’d Like to See Ag (Farm Bureau, Farmers Union(d)) be the 1st lobby group to stand up and be the 1st to push away from the trough.

but…….damn well better get EPA, Animal rights, Enviro wackos’, wetlands control, chemical and fert controls off our backs also……..its a 2 way street.

Now back to ethanol….Economist Urbanchuk cites ethanol pays back Treas. at least 2 to 1 basis. If politicians want actual savings—cut the Home Mtg Int deduction—its a pure drain on the Treas: we have enough houses, we dont have enough fuel…..

Farm subsidies in general just pass thru a farmers fingers on the way to USA consumers who have enjoyed food at at leat 15% under world cost for 50 years……

do that math—300 million X 45k ave income X 15%—–there is the real dollars…..1 trilion per year……buys alot of Ipads…..

during the Farm Crisis of the 80’s farmers were admonished for not creating new markets. So they then built the ethanol infrastructure themselves via Co-ops they financed.

It really comes down to keeping the farmer down on the farm, It was QE2 and China which released that geni from the bottle—not ethanol.

sbark on April 18, 2011 at 6:39 PM

We would like to farm. (small scale) sell extra produce and eggs. Just to recoup the cost of our effort and have a little extra $$$. Can’t sell eggs, cause there are a bazillion regulations (FDA, Ag. Dept, etc. etc.) Costs to comply with these regs (in an official capacity would be prohibitive) yet I eat these eggs myself every day, I take good care of my girls and they seem to be healthy and happy. Same with our veggies… we eat them often, I put them up in jars and freeze them. I could never sell my homemade jams, jellies and pickles as I don’t have a commerical kitchen. Yet we eat them all the time, and we are all fine. I like my pickles better than any I’ve ever eaten. Lots of effort and love go into my homemade goodies. But that is not enough. It’s time for the private marketplace to take back our small family farms and get the freak out of the way.

kringeesmom on April 18, 2011 at 7:11 PM

Over regulation is a HUGE part of the problem. Small farms can’t compete with large farms because common sense has been tossed out the window in favor of tons of red-tape, government inspectors, and bureaucratic roadblocks. All of that plays in the favor of the big companies, which I think was the plan all along, not safety or health concerns.

flyfishingdad on April 18, 2011 at 7:53 PM

End the ethanol subsidy? HELL YEAH!

Even Enviro Industry groups and Algore Inc have said that ethanol is a net loser in terms of a hoped-for fuel gain. In other words it takes more BTU’s to produce this crap than what you get out of it.

There no pros to Ethanol, only cons.
-it is corporate welfare for greedy agro-business corporations like Archer Daniels Midland
-it has driven up the price of corn and corn-based foodstuffs worldwide, hurting the people who can least afford higher food prices – poor people
-ethanol blended fuels cause catastrophic damage to fuel and engine systems (corrosion, melted fuel lines, etc)
-but the biggest con is the $6 billion dollar con job that the Enviro Industry and the greedy agro-business lobby has foisted upon the American public.

CatchAll on April 18, 2011 at 7:56 PM

NASCAR is pimping ethanol and those guys know that it is bad for the internal combustion engine. Are they being held hostage in order to keep Chrysler/Dodge and GM vehicles in the field every weekend?
These teams have engineers with masters degrees working for them for crying out loud.

darwin-t on April 18, 2011 at 8:46 PM

NASCAR is pimping ethanol and those guys know that it is bad for the internal combustion engine. Are they being held hostage in order to keep Chrysler/Dodge and GM vehicles in the field every weekend?
These teams have engineers with masters degrees working for them for crying out loud.

darwin-t on April 18, 2011 at 8:46 PM

NASCAR hasn’t used true stock cars since the mid-1960’s. I wouldn’t put too much “stock” in anything the left-turn boys recommend for everyday driving.

gryphon202 on April 18, 2011 at 9:00 PM

The USDA CRP program puts Ethanol subsidyto shame. The government is paying farmers $70/acre to NOT produce anything on their land. Farmers have to sign 10-year contracts to participate in this (socialist) program.

With grain prices up so high, many farmers are opting out of their contracts and repaying all of the previous payments the government made to them (plus interest) and once again producing something on the land.

If the government would allow farmers to opt out of this program before their contracts expire, the government would save billions in payouts for zero ROI. In addition, the government would RECEIVE tax income from the profits made by actually producing something on this land.

JetBlast on April 18, 2011 at 9:13 PM

Beck covered this in his show today. You can catch the re-run at 2 AM eastern. He has some really interesting facts about how government subsidies really distort the market and ultimately screwing the consumer with higher food prices. He talked to a commodities broker in Chicago last week when he was out doing his live shows. The broker told him that we only have 18 days supply of either corn or grain in general (forgot for sure which), and that our supplies are at a 15 year low. In addition, it sounded like 40% of the corn is now being burned as ethanol, and most food items related to cows, the prices have gone up considerably.

I did some research for a green energy company and came across a factoid a couple of years ago. It think I remember reading that the US Government regulation FOR ethanol would require almost all of the corn by 2014 or 2016. Insane.

With this demand for renewable fuel, even if it could stand alone on its own merits in the marketplace, why in the h*ll are we still paying farmers to idle their land?

I agree with the farmer above. Let’s remove the subsidies and also remove the regulations, including that monstrosity that the dems passed after the election last year. That makes this whole problem that much worse.

karenhasfreedom on April 18, 2011 at 9:41 PM

Eliminate the wind turbine subsidies too. Corporate welfare. Crony capitalism. Money down a rat hole. That means YOU, Jeff Immelt.

petefrt on April 18, 2011 at 10:05 PM


Plus, the Goracle will blow another gasket…

Gohawgs on April 18, 2011 at 10:39 PM

Farm subsidies in general just pass thru a farmers fingers on the way to USA consumers who have enjoyed food at at leat 15% under world cost for 50 years……

sbark on April 18, 2011 at 6:39 PM

They have no idea, do they?
Subsidies will never end. People are to used to that cheapo food.
Our dependency on the govt tit is very insidious.

karenhasfreedom on April 18, 2011 at 9:41 PM

Sell those damned eggs & stuff to your friends & family.
Here in ND you can get a ‘permit’ & some state agency guy comes to your place & the rules really aren’t all that strict.
Our school sec’y, Elementary principal, & the Kindergarten teacher all have chickens & they drop the eggs off at the gas station in town & whoever wants them comes & gets them.
My bro in law just moved back here from E. MT Camp Crook area after selling his ranch & they’re gonna get some more chickens.
I’ll be set for eggs.
And they got a milk cow….
I’m thinking of getting a milk cow. Bum calves would be in heaven.

Badger40 on April 18, 2011 at 11:39 PM

Use Gore as the spokesperson for this. He admitted it was terrible, but only supported it to try to get elected. People need to realize how the Democrats lie to get a certain group to vote for them. Obama with the debt ceiling and Biden on impeaching Bush if he didn’t get Congressional support to invade Iran.

djaymick on April 18, 2011 at 4:42 PM

Yes even the Goracle admitted corm ethanl is a bad concept.
Since ethanol has just 2/3 of the energy as regular gasoline it takes 1 and 1/2 gallons of ethanol to replace 1 gallon of gas. So the subsidy is closer to 70 cents per gallon of gasoline replaced. The truly sad part is that it takes about the same amount of fossil fuel to grow and produce ethanol as it adds in energy to fossil fuels. Even the greennies admit that corn ethanol production harms the enviroment more that the gasoline it replaces. Folks we are pissing away 6 billion dollars a year for no net gain. Oh wait we do gain something. Higher food bills.

TomLawler on April 18, 2011 at 11:53 PM

karenhasfreedom on April 18, 2011 at 9:41 PM

BTW I wasn’t cussing you or your eggs.
It just burns me up people cannot even enter into private contracts to sell effing eggs or raw milk for fear of the a-hole EPA.

Badger40 on April 18, 2011 at 11:56 PM

We’re now a net importer of food and yet arable land continues to be gobbled up for developments. Why don’t we just get it over with and replace the iconic Uncle Sam with Bob the Builder?

In a nearby town, they’re clearing land for more strip malls…however, there are abandoned commercial buildings and empty spaces in existing malls galore. Guess someone figures we’ll need more crack houses and places for bums to bed down in the future.

How are they getting the financing? Guess the myriad of commercial property “For Sale” signs around here indicate that such property is cheap, so that offsets higher interest rates for borrowing? When these loans are defaulted upon adding to the banking/credit mess, we can just hold signs and blame the Commies?

So some immigrants get paid to pile cinder block, some dopers/drunks get to drive nails for a good wage for X months, and the Chamber of Commerce is happy.

Guess that’s commerce’s solution-just build more $hit we don’t need and all will be well. In the meantime, who cares about food?

Dr. ZhivBlago on April 19, 2011 at 1:51 AM

Grits lovers rejoice!

profitsbeard on April 19, 2011 at 2:09 AM

Guess that’s commerce’s solution-just build more $hit we don’t need and all will be well. In the meantime, who cares about food?

Dr. ZhivBlago on April 19, 2011 at 1:51 AM

I’ve seen this before in places in the 80’s like Dallas & it always made me wonder, why would people continue building things no one wants.
I sometimes have to wonder if the govt is involved somehow.
I wonder.

profitsbeard on April 19, 2011 at 2:09 AM

Do you know I can’t find regular grits in ND?
All they have is instant.
There is something wrong with these people culinary-wise.

Badger40 on April 19, 2011 at 8:01 AM

About dang time! They just find it difficult to admit it’s a failure and shouldn’t have been done in the first place. Biomass is another boondoggle we’ll end up funding. They can still grow the corn just not put it into our gas tank. Don’t worry, tho, I’m sure the congress critters will find a way to sweeten the pot for their guys.

Kissmygrits on April 19, 2011 at 8:23 AM

Glenn Reynolds has a post up on how bad ethanol is for older cars and small engines,not to mention the fact that the E10 E 15 hsit get less mileage so you have to buy more fuel.
The E10 stuff is 7 to 10 % less effective in most engines.
Glenn’s article here.
CAN “BOUTIQUE” ETHANOL-FREE FUEL save small engines from being ruined by current ethanol blends?

Posted at 11:26 pm by Glenn Reynolds

Col.John Wm. Reed on April 19, 2011 at 8:39 AM

Col.John Wm. Reed on April 19, 2011 at 8:39 AM

Been watching & hearing this for many years.
Plays hell on seals & gaskets I guess.
I think it’s one of the reasons we went through 2 little Honda motors that were running a well in one of our pastures.

Badger40 on April 19, 2011 at 1:13 PM

Even Enviro Industry groups and Algore Inc have said that ethanol is a net loser in terms of a hoped-for fuel gain.

CatchAll on April 18, 2011 at 7:56 PM

Why would we want to cite “Enviro industry groups and Algore Inc” not liking ethanol as a reason to end ethanol subsidies? Aren’t there enough reasons besides giving those bozos credit for figuring it out? “Environmental wackos (ala Rush) agree with us!” That’s not a good talking point.

Bud Dude on April 19, 2011 at 5:17 PM

It’s probably time for ethanol subsidies to be phased out. That being said – I don’t buy the argument that ethanol is the primary cause for the increase in corn prices. The primary reason corn and soybean prices are so high is because of lower carryover supplies and higher demand from China and other developing nations.

It would be easier on farmers if Congress would phase out the ethanol subsidy on a set timetable so the industry could adapt, instead of just cutting it to nothing like that. In fact, they should have done something like this a couple years ago and we’d be at the lower levels by now. However, common sense has no place in politics.

Bud Dude on April 19, 2011 at 5:25 PM

darwin-t on April 18, 2011 at 8:46 PM

NASCAR, Formula One, IndyCar, and IHRA Top-Fuelers use ethanol because of it’s high octane rating. The fuel resists pre-detonation in high-boost and high-compression engines. This allows for much more power. It is bad for the long-term, tho, since ethanol is highly corrosive. But, what do they care? The engines last one race, then are completely rebuilt. In the case of IHRA Top-fuelers, these engines are rebuilt every 1/4 mile!!!!!!

Flex-fuel cars have special hardened fuel lines to resist damage caused by E85. Mot cars still lack this hardening, and some have succumbed to damage at E10. Ending the subsidy may be the best way to keep the EPA from mandating E15.

Phil-351 on April 19, 2011 at 8:33 PM

Couple o’ things: The CRP is the Conservation Reserve Program, which was designed largely by the LIbs, but which has as its purpose, to take highly-erodible lands out of tillage, and require cover crops (native grasses, e.g.) to be planted (a cost to the farmer), and there is a Gov’t payment involved, for sure – but it’s not that big a payment, given the returns to commercial grains now in today’s market. So repeal the CRP legislation, if you must, and if you don’t believe in its intended purpose, don’t complain when the more fragile lands begin to end up in the roadside ditches, and the rivers and so on, downstream.

Then, consider the “let’s take away all subsidies” and even, “let’s stop the production of ethanol” argument. All defensible arguments; but would you remove 13.5 billion gallons of ethanol from the fuel supply right now, given current prices for gasoline? Maybe, maybe not. Gradual withdrawal would be a wise solution.

Finally, the “rots hoses and belts and seals” in motors argument, is pretty weak; I’ve been towing an 18,000 lb. 5th wheel trailer with my 2005 V-10 F-350 for 55,000 miles, using ethanol blends, and still have all parts functioning just fine in my engine; and Colorado, for example, has used ethanol blends for over a decade, and you never hear about the awful damage which the ethanol-blended fuels causes, and the manufacturers themselves say, in their owners’ manuals, that (for the usual engine) up to 15% ethanol is just fine. And that’s what I run all my vehicles on.

PS: Of the much-reviled “Farm Bill”, appx. 17% of the money spent therein, goes to farmers as subsidies; about 15% goes to the CRP, per legislation discussed above; and the balance, about 70%, goes to food stamps, WIC programs, etc. Look it up. I did. There is not a separate “Food Stamp Department” in DC, folks….

jsaturn on April 19, 2011 at 8:47 PM