Senator Webb: Congress Should End Costly Ethanol Subsidies

Continuing ethanol protections would cost taxpayers at least $31 billion 

U.S. Senator Jim Webb today called for an end to costly ethanol subsidies and tariffs.  In a bipartisan letter, Senator Webb and other senators urged Majority Leader Harry Reid (D-NV) and Minority Leader Mitch McConnell (R-KY) to eliminate the protections currently manipulating ethanol costs and restricting U.S. trade.  The current subsidies and tariffs on domestic ethanol are set to expire on December 31st.
 
“Eliminating or reducing ethanol subsidies and trade barriers are important steps we can take to reduce the budget deficit, improve the environment, and lessen our reliance on imported oil,” said the senators. “Historically our government has helped a product compete in one of three ways: subsidize it, protect it from competition, or require its use. Ethanol may be the only product receiving all three forms of support from the U.S. government at this time.”
 
Currently, the United States has a 54 cent-per-gallon tariff on ethanol imports and a 45 cent-per-gallon subsidy on blending ethanol into gasoline. In addition, the Federal Renewable Fuels Standard mandates an annually increasing usage of corn ethanol. These protections are expensive and redundant. “We cannot afford to pay industry for following the law,” said the senators, noting that subsidies would cost taxpayers at least $31 billion over the next five years.
 
In a 2009 letter, Senator Webb recommended the Environmental Protection Agency examine more closely the negative effects ethanol protections have on other sectors of the economy.  Ethanol subsidies have led to steep increases in the price of corn and other sources of feed, which have negatively affected beef cattle, dairy and poultry producers and driven up the cost to consumers of commodities like milk and eggs.  He also sent a letter to Secretary of State Hillary Clinton and U.S. Trade Representative Ron Kirk expressing concerns over the ethanol tariff.
 
 

The full text of the letter is below.
 
The Honorable Harry Reid                 The Honorable Mitch McConnell
Majority Leader                                  Minority Leader
United States Senate                          United States Senate
S-221 United States Capitol               S-230 United States Capitol             
Washington, DC 20510                      Washington, DC 20510
 
 
Dear Majority Leader Reid and Minority Leader McConnell:
 
We are writing to make you aware that we do not support an extension of either the 54 cent-per-gallon tariff on ethanol imports or the 45 cent-per-gallon subsidy for blending ethanol into gasoline.  These provisions are fiscally irresponsible and environmentally unwise, and their extension would make our country more dependent on foreign oil.
 
Subsidizing blending ethanol into gasoline is fiscally indefensible.  If the current subsidy is extended for five years, the Federal Treasury would pay oil companies at least $31 billion to use 69 billion gallons of corn ethanol that the Federal Renewable Fuels Standard already requires them to use.  We cannot afford to pay industry for following the law.
 
The tariff on ethanol makes our country more dependent on foreign oil.  The tariff is nine cents per gallon higher than the ethanol subsidy it supposedly offsets, and this lack of parity puts imported ethanol at a competitive disadvantage against imported oil.  This discourages transportation fuel imports from Brazil, India, Australia, and other sugar producing countries, and leads to more oil and gasoline imports from OPEC countries that enter the United States tariff-free.  Eliminating or reducing the ethanol tariff would diversify our fuel supply, replace oil imports from OPEC countries with ethanol from our allies, and expand our trade relationships with democratic states.
 
The data overwhelmingly demonstrate that the costs of the current ethanol subsidy and tariff far outweigh the benefits.  According to a July 2010 study by the Congressional Budget Office, ethanol tax credits cost taxpayers $1.78 for each gallon of gasoline consumption reduced, and $750 for each metric ton of carbon dioxide equivalent emissions reduced.  The Center for Agricultural and Rural Development at Iowa State University recently estimated that a one-year extension of the ethanol subsidy and tariff would lead to only 427 additional direct domestic jobs at a cost of almost $6 billion, or roughly $14 million of taxpayer money per job.
 
Historically our government has helped a product compete in one of three ways: subsidize it, protect it from competition, or require its use.  We understand that ethanol may be the only product receiving all three forms of support from the U.S. government at this time.
 
Eliminating or reducing ethanol subsidies and trade barriers are important steps we can take to reduce the budget deficit, improve the environment, and lessen our reliance on imported oil.  We look forward to working with you on responsible energy tax policy.
 
Sincerely,