Politics

Hooray! Congress Is Finally Scaling Back Ethanol Subsidies! Except for Not

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I'm in you, I'm in you … I'm in you

The Washington Examiner's Timothy P. Carney, your go-to newsman on the corporatism beat, explains how the alleged congressional attack on ethanol subsidies is actually yet another gift to ethanol producers:

Congressmen of both parties are putting on a show of rolling back federal subsidies for this alcohol fuel, but these proposals have the backing of the ethanol industry because they would actually increase taxpayer support for ethanol. […]

Last month, South Dakota Sen. John Thune, R., and Minnesota Sen. Amy Klobuchar, D., proposed the Ethanol Reform and Deficit Reduction Act. The bill ends the most famous ethanol subsidy, a handout to ethanol blenders called the "Volumetric Ethanol Excise Tax Incentive." While the government accounting books treat the VEETC as if it were a tax credit against the fuel excise tax, it is really just a transfer payment from the Internal Revenue Service to anyone who blends ethanol with regular gasoline. Blenders simply fill out a form stating how much ethanol they mixed with gasoline last month, send it to the IRS, and then wait for a check amounting to 45 cents per gallon. You can get this credit even if you pay zero excise tax.

Historically, this blender's subsidy boosted ethanol demand by bringing down the effective price of a gallon of ethanol. But the 2005 energy bill created an ethanol mandate, requiring refiners to use a certain amount of ethanol every year. The 2007 energy bill expanded the mandate, and in 2011, refiners are required to use 13 billion gallons of ethanol. This mandate now sets demand, with the tax credit having little or no effect. The Congressional Budget Office recently wrote: "In the future, the scheduled rise in mandated volumes would require the production of biofuels in amounts that are probably beyond what the market would produce even if the effects of the tax credits were included." […]

Thune and Klobuchar's bill takes the tax revenue gained from ending the VEETC (which, again, doesn't help ethanol producers), and dedicates most of the money to other ethanol subsidies, such as tax credits for small ethanol producers and for ethanol blender pumps to be installed at gas stations. The bill, of course, leaves in place the mandate, which is by far the biggest ethanol subsidy.

Lobbyists for the American Coalition for Ethanol and the Renewable Fuels Association applaud the bill -- which tells you just about all you need to know.

Whole nauseating story here.

Reason hates the government's ethanol policies; read all about it starting from here.

And now, an encore presentation of "Great Moments in Unintended Conseqeuences":