We still have work to do in ridding ourselves of the ethanol juggernaut
As the clock struck 12 am January 1, one of the most anti free market
government interventions expired without renewal and without fanfare.
In honor of the Iowa Caucuses, we can now declare that the ethanol
subsidies and tariffs are finally dead. However, before we celebrate
this rare piece of good news, we must remember that in order to
deracinate the ethanol beast from our midst, we must destroy its third
leg; the 10% blenders mandate.
Over the past decade, ethanol has been the poster child for the worst
aspects of big-government crony capitalism. The ethanol industry has
used the fist of government to mandate that fuel blenders use their
product, to subsidize their production with refundable tax credits, and
to impose tariffs on more efficient sugar-based ethanol from Brazil.
This onerous mega-intervention on the part of government has had a
devastating effect on the price of food and gas and it has forced
consumers to purchase inefficient and often damaging fuel. Yet worst of
all, it has enriched an industry that would have otherwise faltered in
the natural order of the free-market. Ethanol production has increased
719% during the past decade, as almost half of all corn grown in the
country is diverted for this unnatural and odious use of a product that
was traditionally grown for livestock feed. Government-backed venture
socialism is indeed a powerful force.
Ethanol blenders have benefited from the 45-cent per gallon Volumetric Ethanol Excise Tax Credit (VEETC), which may be refundable
for those companies that lack any excise tax liability. The ethanol
industry has pocketed over $45 billion in subsidies since 1980, with a
$6 billion annual price tag in recent years. Additionally, all foreign
ethanol imports incurred a 54-cent-per-gallon import tariff, which
coupled with a mandatory 2.5% ad valorem tax, adds up to an increased
cost of about $0.60 per gallon.
These two policies are unlikely to be renewed; however, the most
egregious part of the three-legged ethanol beast –the mandate – is still
intact. Industry leaders are employing a rope-a-dope strategy
vis-à-vis the subsidies, while launching a counterattack to double down
on the mandates. They must be stopped.
Under current law, the federal government mandates that 10% of fuel
contain ethanol. This is on top of the generic mandate that requires
the consumption of 36 billion gallons of renewable fuels by 2022. All
these government interventions and coercions have had such a tendentious
effect on ethanol production, that there is now a massive surplus of
domestic ethanol. By far, the tyrannical mandate requiring everyone to
use this ineffectual product is more effective than the subsidy or
Now, the ethanol industry is planning an aggressive lobbying effort
to expand the mandate in order to sell off their government-sponsored
surpluses. Tom Buis, CEO for the industry group Growth Energy, revealed that the new agenda
“is opening up the market place with E15 (15% ethanol blend), and flex
pumps and flex fuel vehicles.” Such an increase in ethanol
concentration will have a dangerous effect on automobile engines, yet
these leeches only care about their bottom line.
While expansion of the mandate is an uphill battle for ethanol
peddlers, they will use the inevitable price increase at the gas pump as
casuistry for their agenda. Repeal of the subsidy for ethanol blenders
will increase the cost of gas, even though ethanol is an ineffectual
and inefficient fuel mixture that has engendered higher gas prices.
Sound confusing? It’s actually quite simple.
In the real world of the free-market – one in which we would use 100%
petroleum – gas prices would necessarily decrease. However, as long as
the mandate for 10% ethanol concentration is left intact, we will be
forced to purchase this more expensive fuel, albeit at a higher price,
due to the expiration of the subsidy. Industry lobbyists will use this
counterintuitive argument to promote an increase to the destructive E15
House Republicans must preempt this act of aggression by repealing
the sections of the Energy Policy Act of 2005 (EPAct, P.L. 109-58) and
the Energy Independence and Security Act of 2007 (EISA, P.L. 110-140)
that mandate ethanol fuel blends. In fact, they should probably repeal
those laws entirely.
Not only is this good policy; it is good politics (outside of Iowa).
This is a quintessential opportunity for Republicans to stand on
principle on an issue that resonates with populist factions on both
sides of the aisle. There is no better example of how government
regulations and corporate welfare are used to enrich a select few – to
the detriment of all American consumers – than the ethanol boondoggle.
There is no worse form of tyranny than using the boot of government to
force consumers to purchase a particular product.
Republicans should not squander this teachable moment and unique opportunity to completely kill ethanol while it is unpopular.