Congress Actually Ends Taxpayer Funding Of Ethanol Subsidies

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Corn Ethanol Pump

Corn Ethanol Pump

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When the U.S. Congress adjourned for the holidays on Friday, December 23, its departure sealed the fate of subsidized ethanol production.

During its session, the Congress did not renew a tax break for U.S. production of corn-based ethanol that had become increasingly unpopular across a wide area of the political spectrum.

The tax credit amounted to 45 cents per gallon of ethanol that was blended into gasoline. It had been in place since 1980.

Corn lobby loses support

As The Detroit News reported the next day, by some estimates, total subsidies to the ethanol industry may have reached $45 billion over that period. That is several times the total loans, grants, and tax credits provided thus far to the U.S. electric-car industry.

In June, the Senate voted 73-27 to end the tax break. That vote, attached to an economic development bill that was stalled, was viewed as symbolic--letting Congressmembers go on record against continuing the subsidies without effectively ending them.

It proved to be a test case that demonstrated the waning support in Congress for the corn-based ethanol industry. Three weeks later, an agreement was reached to end the subsidies for real--and it held for the rest of the year.

Ending the ethanol tax breaks is projected  to save about $2 billion over several years. Of that total, two-thirds is to be applied to cutting the national debt, although it represents just one-tenth of 1 percent of the total national debt of $14.3 trillion.

Half as productive as Brazil

Using corn is the least productive way to make ethanol, at roughly 300 gallons per acre of feedstock. The Brazilian ethanol industry gets twice as many gallons per acre using sugar cane, and other feedstocks like switchgrass have been projected to produce up to 1,200 gallons per acre.

Development of cellulosic ethanol refineries that use non-corn feedstocks have lagged commercially, despite several pilot projects.

U.S. corn ethanol had further been protected by a 54-cents-per-gallon tariff on imports of ethanol from other countries (meaning Brazil). That import duty was also ended by the departure of Congress for the year.

But with sugar prices high in Brazil, imports of ethanol aren't likely to spike in the short term.

Conflict with 2007 mandate

That leads to a longer-range question: Will there be sufficient ethanol produced and imported to meet the escalating ethanol-use requirements of the 2007 Energy Independence and Security Act passed by Congress?

Proposed EPA E15 gasoline pump warning label for ethanol content

Proposed EPA E15 gasoline pump warning label for ethanol content

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That law requires that 36 billion gallons of ethanol be blended into U.S. vehicle fuel by 2022--which is more than three times the 11.1 billion gallons used in 2010. The requirement rises to 15 billion gallons for 2015.

Congress has blocked the EPA's approval of E15 gasoline, which has up to 15 percent ethanol, largely at the request of automakers and others who fear damage to engines not designed to handle fuel with that volume of ethanol. The current standard, in places for decades, permits up to 10 percent ethanol in pump gasoline.

So while Congress has ended tax breaks, it may have set up the fuel industry for failure on the 2007 mandate by explicitly banning E15 gasoline.

Until that is resolved, the politics of ethanol are likely to remain fractious.


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Comments (17)
  1. The government needs to steer money away to pay for more illegals and their anchors; corporate welfare to trans-nationals who offshore and outsource American jobs, capital investment, and innovation enmasse to foreign countries and workers; and the politicians as bribes. That's all it's about anymore.

  2. You lost me at illegals, Paul, sorry. You could have talked about corporate welfare to huge agribusiness like Monsanto. You could have talked about how this is one step from pulling away from our dependence on one cereal crop. You could have talked about the effect this would have on the citizens of Iowa.

    No. Your first thought was the illegals. Why was that?

  3. car reports, it's a car website, unless it effects green cars take the political junk somewhere else.

  4. @CDspeed: Ummm, not clear if that was aimed at the content of the article or the previous two commenters. Clarify?

  5. The previous two comments, sorry. The article was great I guess I'm just overly prepared for the political headache the presidential election will bring. And for the record I was never an ethanol fan, but only because I never saw it do any good.

  6. I, for one, think the article is great and perfectly appropriate level of political discussion.

  7. "Congress Actually Ends Taxpayer Funding Of Ethanol Subsidies"

    RIP Ethanol......NOW GO AWAY!!

  8. Whether or not ethanol subsidies are good or not, I would guess this is the wrong way for congress to act. Going from 45 cent/gallon down to 0 cent/gallon is very disruptive to business. If the desire was to get right of the subsidy, there should have been a multi-year phase-out process.

    This action is typical of the boom-bust cycles caused by congressional action.

  9. This just shifts more revenue to small alcohol producers.

  10. @Kid Marc: Can you explain further what you mean? I'm curious.

  11. Alcohol producers incur a production cost per gallon that benefits smaller producers [SP] than the larger ones. The waste, spent mash/liquid is re-used or sold by the small producer where the large producer [LP] spends double the energy needs to get the water out. Small producer [SP]--uses all sources available to produce alcohol, large producer [LP]--where the subsidy is/was, corn. Sold or re-used, the SP sustains profitability through methods favoring small production, labor, and the environment, while the LP sustains profitability with the help of subsidies.

    Currently there is a grassroots movement in the Midwest beginning to answer this problem.

  12. Other alternative fuel research (switchgrass, algae, etc) has suffered bitterly from these subsidies as the subsidies destroyed any capitalist incentive for non-corn altrenatives. Now more money should flow to some of these vital and extremely promising solution - the author was right that there will be growing pains but the point is that those are GROWING pains, and the right technologies will grow as a result. This would not happen with a slow phase out as others have suggested. The artic ice is not slowly disappearing, but quickly, and neither should we act slowly, but quickly.

  13. RIP get it out of the distribution system so we can all get back at least a 10% increase in MPG'S!

  14. Good!!! Ethanol is NOT and should NOT be an option for fuels of the future. Right now we should be putting money into electric plugging stations around the country as more car companies are sure to include plug-in hybrids as part as their car lines. Another option that NEEDS to be put in place right now is hydrogen cars and hydrogen filling stations, like the ones in Southern California that use solar energy to produce FREE hydrogen to fuel the Honda Clarity which uses hydrogen as it's fuel, and the only emission is water. It only takes 5 minutes to fill up a hydrogen car that can go about 250 miles on a "tank" full of hydrogen. Instead of plug-in hybrids that take overnight to charge and still uses dirty gasoline!

  15. I agree with ya regarding ethanol but not with electric plugging stations.
    Our Electrical Distribution System is WW11 vintage. That needs to be upgraded to handle our present demand which by the way it can't. Remember those 'rolling black-outs'we face when we have an unusually hot summer? Now can you immagine more people plugging into a system that is being held together with ducttape and bailing wire? Not a good combo?
    The same goes for our bridges and roads.

  16. Good and FINALLY! Now when are they going to get these MPG's vampire out of the gasoline?

  17. now when are we going to end big oil subsidies? soon i hope. dont worry it wont affect the price long, all kinds of gas saving cars will be on the market.

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