Biofuels and federal subsidies

By The Gazette Editorial Board

The U.S. ethanol industry has received government subsidies for 30 years. Today, they're worth about $6 billion annually. Calls for ethanol to go it alone are mounting. This well-established industry doesn't need so much help anymore, they claim.

Some changes are in order, but Congress shouldn't pull the rug out from under ethanol. And while they're weighing whether to renew, modify or eliminate ethanol subsidies that end this year, how about casting a more critical eye at the estimated $37 billion a year in tax credits and exemptions the oil industry gets?

The domestic ethanol industry benefits from two subsidies:

l A 54-cent per gallon tariff on imports of foreign ethanol.

l A 45-cent per gallon tax credit for blenders who add ethanol to gasoline.

Yet at the same time, federal renewable fuel standards mandate that 13 billion gallons of ethanol be blended into U.S. gasoline annually, 18 billion gallons in 2014 and 36 billion by 2022.

So ... if more ethanol use is required by law as time goes by, why does the industry need the tariff and tax credit?

It doesn't, according to a recent report from the heart of corn ethanol country. An Iowa State University study released last month concludes that ending those subsidies would harm the corn and ethanol markets only modestly at most - provided the mandates remain and are supported by lifting the blending “wall.” Proposals would raise the current 10 percent ethanol/90 percent gasoline mix to 12 percent or even 15 percent ethanol. The Environmental Protection Agency is expected to decide this fall.

The ISU study also projects that consumers would pay less for ethanol and taxpayers would save $6 billion without the subsidies.

OK, but should subsidies be eliminated altogether?

The Union of Concerned Scientists says no. But its two-pronged proposal suggests a shift to less costly performance-based tax credits, along with other tax credits and loan guarantees to support the first 1 billion gallons of production capacity of cellulosic biofuels - made from other biomass such as grasses, wood chips, even garbage.

If some form of ethanol tax credit is maintained, we like the idea of one that's performance-based: Reward each type of biofuel producer depending on how much oil it replaces and how well it reduces global warming emissions. Typical corn-based ethanol would get nothing in this plan. But corn ethanol improved by better technology could qualify, along with soy biodiesel and cellulosic ethanol.

Iowa is by far the nation's leader in ethanol production capacity. But this state shouldn't expect to stand on corn alone. Biofuels must evolve if they're to more effectively reduce our nation's dependence on foreign oil, cut harmful emissions and make wise use natural resources.