Ethanol Blog
Todd Neeley DTN Staff Reporter

Thursday 03/11/10
NRDC Blog: 'Time to end Ethanol tax Credit'

A University of Missouri Food and Agricultural Policy Research Institute study says that the ethanol industry's blenders' tax credit is costing taxpayers $4.18 per gallon and driving up grain prices, according to a blog written by Natural Resources Defense Council Director of Renewable Energy Policy Nathanael Green.

The study estimates that if the tax credit is extended it would cost about $5.9 billion next year, and would lead to 1.4 billion gallons above the 12.6 billion gallons required by law through the Renewable Fuel Standard.

"In other words, next year the oil companies will be required to buy 12.6 billion gallons of conventional corn ethanol, but because taxpayers are giving them $5.9 billion they'll consume 1.4 billion more than required. That works out to $4.18 per extra gallon," the blog said.

"As I've written before, having the tax credit on top of the RFS is like paying drivers to obey the speed limit."

Green said that taxpayers have been "subsidizing the corn ethanol industry far too long at the expense of developing cleaner, more renewable biofuels."

Green wrote that the FAPRI study confirms the "underlying economic truth of indirect land-use change. Higher prices for commodities mean that farmers here in the U.S. and around the world will want to grow more."

The blog calls the corn ethanol tax credit "a huge waste of money.

"We don't need an additional 1.4 billion gallons of corn ethanol, or the higher prices for grains and more deforestation that come with it. And we sure as heck don't need to be spending $4.18 per gallon to get it. The corn ethanol tax credit (and the biodiesel tax credit too) needs to end."

(Natural Resource Defense Council blog, March 10, 2010)

(http://switchboard.nrdc.org/…)

DTN: It's interesting to note that subsidies given to oil worldwide dwarf those of corn ethanol. A study titled, "Analysis of the Scope of Energy Subsidies and Implementation of Phasing Out" authored by researchers at the International Energy Association, World Bank, the Organization of Petroleum Exporting Countries, or OPEC, and the Organization for Economic Cooperation and Development, estimated that the world is spending in excess of $500 billion a year on fossil fuel subsidies. In addition, regulatory agencies such as the California Air Resources Board, have determined that petroleum-based fuels have little or no international indirect land use changes associated with their production. At the same time CARB penalizes corn ethanol for ILUC. Academics and ethanol industry representatives asked CARB to calculate ILUC for all fuels. That is not done in the state's final regulation. (Todd Neeley)
Posted at 10:42AM CST 03/11/10 by Todd Neeley
Comments (14)
What are all these people and organizations that "hate ethanol" going to do when ethanol stands on its own and doesn't use any tax credits? WOW! Even OPEC is scared of ethanol, and they should be, it’s a game changer.
Posted by Thomas Blazek at 12:22PM CST 03/11/10
OPEC is not scared. OPEC nations have sovereign funds that will buy up (or develop their own) ethanol assets at a time of their choosing. I think that the pressure on the VEETC plays into the hands of domestic refiners, blenders, and importers that are subject to RFS2 renewable volume obligations. These entities are hoping to remove conventional gasoline from terminals to control the ethanol blending market. Getting rid of the VEETC will make this much easier due to the effect that this would have on downstream blenders.
Posted by Andrew Gray at 1:06PM CST 03/11/10
I have problems with Mr. Greens comments here. What else have we got for developing more cleaner renewable fuels, anything else that we develop will more than likely need to be subsidized especially when trying to go up against big oil. This country has been subsidizing entities for years at tax payers expense, but most of this money is funneled right back into our own economy by keeping it here at home. I get tired of these guys.
Posted by GWL 61 at 5:17PM CST 03/11/10
The anti ethanol crowd does not have a clue. Being against ethanol has become a religion. They ignore oil subsidies. They hold ethanol to standards that fossil fuels do not have to meet. They disregard the economic impact of sending money overseas to pay for imported oil. They care more for OPEC and other oil exporters than they care for Americans. They ignore the jobs that are created by ethanol in rural areas. They ignore Peak Oil which according to one Kuwaiti University professor will by here by 2014. Those including myself who follow Peak Oil developments closely think Peak Oil is already here and explains the Great Recession and high and rising crude oil prices even though we are in the worst recession since the Great Depression. What is amazing is that ethanol opponents baseless propaganda gets so widely publishing and the ethanol side is so mute. I blame ethanol supporters for being timid and unaware of the situation. Follow developements in the Peak Oil story at theoildrum.com.
Posted by david heesch at 3:05AM CST 03/12/10
Um, first of all, the leeked joint (IEA, OECD, OPEC and World Bank) report, being produced at the request of the G-20, is a zero draft. It is nowhere near the final version. Second, the $500 billion figure, which comes from the Global Subsidies Initiative (and is an extrapolation from IEA numbers) refers mainly to CONSUMER subsidies for fossil fuels (i.e., natural gas and coal, in addition to petroleum products) and electricity, and mainly in developing countries and countries in transition to a market economy (Russia, Ukraine, etc.). The effect of phasing out consumption subsidies would be to reduce demand for fossil fuels in those countries, which would increase the global supply and depress prices. In the absence of caps on emissions, consumption of petroleum products in countries that do not cap CO2 emissions would actually increase, though by not as much as the decrease in developing countries. This suggests that to limit GHG emissions one needs to not only phase out fossil-fuel subsidies but also to limit emissions. Subsidizing biofuels on top of mandating them is, as a growing number of independent observers have pointed out (and Greene is in general pro-biofuels) is a very expensive way to reduce emissions (per tonne of CO2-eq avoided) and, in the a non-carbon-constrained world simply helps to increase the amount of liquid fuels that will be consumed at a given price -- hardly an incentive for conservation. Finally, in answer to David Heesch, I know of nobody who is critical of ethanol subsidies (and I know a lot of people who fit that description) that is also not critical of subsidies to fossil fuels, notably to petroleum.
Posted by Ronald STEENBLIK at 6:25AM CST 03/12/10
Correction: "In the absence of caps on emissions, consumption of petroleum products in countries that do not subsidize the consumption of fossil fuels would actually increase (because oil prices would drop), though by not as much as the decrease in developing countries."
Posted by Ronald STEENBLIK at 6:29AM CST 03/12/10
Using blender pumps would require a tank for gasoline and a tank for ethanol and still give the public the grades of fuel desired.
Posted by Larry Frazee at 7:48AM CST 03/12/10
quote from Ron Steenblik "I know of nobody who is critical of ethanol subsidies (and I know a lot of people who fit that description) that is also not critical of subsidies to fossil fuels, notably to petroleum." So how come we don't hear any noise about ending oil subsidies---just ethanol? I know you think the military in the Mid East is mostly for Israel but I still think oil control is a major reason.
Posted by Martin Tjossem at 8:59AM CST 03/12/10
The U.S. subsidies for fossil fuels are less than 10% of the subsidies for ethanol on a per BTU basis. If the ethanol tax credit was on the same scale as subsidies for oil it would be less than 4 cents a gallon. As for the defense spending argument as an oil subsidy it is simply not true. We had access to plenty of oil before the wars, during, and will afterwards. The Middle East needs to sell oil to someone, and as long as they do so it enters world commerce. Who they sell it to does not matter.
Posted by THOMAS ELAM at 9:11AM CST 03/12/10
Quote from Martin Tjossem: "So how come we don't hear any noise about ending oil subsidies---just ethanol?" I don't know. Because you have your ears closed? Because you've been looking in the wrong places? Look, for example, at the Earth Track website. Earth Track has done the most in-depth quantification of ethanol subsidies, but also has been quantifying and criticizing subsidies to fossil fuels (particularly oil) for years, and continues to. See www.earthtrack.net. The same for the Global Subsidies Initiative (www.globalsubsidies.org). It has done a number of case studies on biofuel subsidies around the world, but is also spearheading a number of in-depth studies supporting the G-20 initiative to phase out subsidies to fossil fuels. Same story with Friends of the Earth. Finally, why should anybody be concerned about subsidies to biofuels when, in the aggregate, they are still less than subsidies to fossil fuels? Because, per unit, they are much higher, and because they distort food and land markets. That might be acceptable if there was any prospect in sight of the biofuel subsidies disappearing. But as we have seen in the on-going debate over extension of the blenders credits, the biofuel industry has every intention of holding on to the subsidies, no matter how costly they prove to be. (See article by Nathanael Greene, above.) Keep subsidizing at current rates, and as ethanol production expands, the U.S. will be looking at many tens of billions of dollars a year just to keep people driving vehicles that are half as fuel efficient as those being driven by their European and Japanese counterparts.
Posted by Ronald STEENBLIK at 9:49AM CST 03/12/10
Example of criticism of fossil-fuel subsidies from Friends of the Earth (which has also been critical of ethanol subsidies): www.commondreams.org/newswire/2010/03/11-16
Posted by Ronald STEENBLIK at 10:46AM CST 03/12/10
Ronald, Nathanael Green and the NRDC would not be considered pro-biofuels. Nearly every position Green and the NRDC have taken is entirely counter to all the issues the ethanol industry holds dear: the blenders tax credit, tariffs on imported ethanol, the Renewable Fuel Standard, etc. Green has been consistent in that he has stated many times that they want to do biofuels right. But he is a strong proponent of calculating international indirect land use changes when it comes to ethanol, and isn't in agreement with the ethanol industry when it says a healthy corn ethanol industry is necessary to perpetuate the development of second- and third-generation biofuels industries. So, to say Green is generally pro-biofuels isn't entirely accurate.
Posted by Todd Neeley at 11:09AM CST 03/12/10
Todd: I suggest you maintain a distinction between "pro-biofuels lobby" and "pro-biofuels". You regard Greene's stances as heresy. Not everybody who would like to see reduced oil consumption and reduced pollution and GHG emissions regards them as such. I stand by my description.
Posted by Ronald STEENBLIK at 11:40AM CST 03/12/10
In regards to petroleum subsidies and their link to higher oil prices, this effect is not really frowned upon by the private Federal Reserve. Dollar denominated oil contracts provide a home for our massive amounts of currency. While I'm not the biggest fan of long-term subsidies, petroleum subsidies should be unwound over time to diminish the effect on the US dollar and to keep an even bigger global crisis from occurring.
Posted by Andrew Gray at 2:28PM CST 03/12/10
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