Oil Industry Subsidies $21 Billion—Ethanol Subsidies $60 Billion


Last week, Congress hauled the chief executives from America's biggest oil companies into a committee hearing where they were hectored about the billions in tax breaks their industry receives to produce crude. As Bloomberg reported:

Exxon Mobil Corp. Chief Executive Officer Rex W. Tillerson and four counterparts defended $21 billion in U.S. tax breaks that Democrats are seeking to recapture to reduce the federal deficit.

OK. But there is another energy subsidy that could be eliminated that would help reduce the budget deficit even more. The bioethanol subsidy.

As I noted last fall, the National Academy of Sciences' policy journal, Issues in Science and Technology, had just published a remarkably disturbing commentary, "The Dismal State of Biofuels Policy," [subscription required] about how much Americans taxpayers are likely to pay in the future for the privilege of burning food in their gas tanks. The commentary, citing estimates from the subsidy-tracking nonprofit Earth Track, is by University of Minnesota economist, C. Ford Runge and Cargill Foundation* president Robbin Johnson. From the article:

According to estimates by Earth Track founder, Douglas Koplow, if current laws are maintained until 2022, the biofuels industry will receive more than $60 billion per year in subsidies, more than six times the $9.5 billion in support received in 2008. Cumulative subsidies between 2018 and 2022 are expected to total $420 billion. If the Obama plan to require 60 billion gallons by 2030 comes to pass, subsidies in that year would be $125 billion, and cumulative support from 2008 to 2030 would be in excess of $1 trillion.

So, $21 billion from the oil industry versus $60 billion from the ethanol industry, and perhaps considerably more if the ethanol mandates hold.

Cato Insitute energy policy analysts Jerry Taylor and Peter Van Doren explain that Congressionl fiddling with the tax code introduces inefficiency in economic decisionmaking by companies and investors. They conclude:

Even left-of-center energy activists like Amory Lovins of the Rocky Mountain Institute, Carl Pope, executive chairman of the Sierra Club, and green energy investor Jeffrey Leonard, chairman of the Global Environment Fund, think the time is ripe to eliminate all energy subsidies in the tax code and let the best fuel win.

Let the best fuel win. On Capitol Hill that sentiment qualifies as crazy talk.

*For those few H&R commenters who reflexively indulge in simplistic follow-the-money "analyses" of viewpoints in place of actually exercising their critical faculties (and we all know who you are), please note that Cargill is the third-largest producer of ethanol in the U.S.

Disclosure: I am still holding onto my 100 shares of Exxon Mobil in my retirement account.