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Ethanol Subsidies Expire

Federal Aid: Congress refuses to renew tariffs, tax breaks

by Jeff Johnson
January 4, 2012

As 2011 came to an end, so did two long-running federal subsidy programs intended to aid U.S. producers of ethanol. One program placed a 54-cent-per-gal tariff on imported ethanol and the other gave a 45-cent-per-gal tax credit to U.S. oil companies that purchased and blended ethanol with gasoline. Neither was extended by Congress.

The programs stretch back to the 1980s and have helped spur corn-kernel-based ethanol production in the U.S. U.S. gasoline now contains 10% ethanol, and U.S. farmers produce more than half of the world’s ethanol.

Nearly all this ethanol is made from corn-kernel feedstock. Despite a host of federal programs to encourage ethanol production from cellulosic materials—corn stover, wood chips, switch grass, and other waste products—corn remains king. About one-third of U.S. corn goes to ethanol production, about half feeds animals, and the rest is used for human consumption, including cooking oil and sweeteners.

The subsidy programs had a host of critics—conservatives who dislike subsidies, oil companies that see ethanol as a competitor, and a growing number of environmental groups that note that corn-kernel-based ethanol generates about the same greenhouse gas output as gasoline. Some of the strongest criticism comes from international agricultural economists. They say that high U.S. corn prices have raised the price of other grains in international trade and are hurting the world’s poor, who depend almost completely on grains for their diets (C&EN, Sept. 13, 2010, page 20).

The overall impact of the expired subsidies is unclear. Some in the ethanol industry claim ethanol is already competitive with gasoline without the subsidy.

“The tax credit was a valuable tool that helped the fledgling ethanol industry gain traction in a market dominated by oil,” says Jeff Broin, chief executive officer of Poet, an ethanol refiner. “I believe today the industry is equipped to compete without that tax credit, which is a testament to what the U.S. can accomplish by combining smart policy with American business sense.”

One likely impact is an increase in the price of gasoline, which consists of 10% ethanol.

Meanwhile, federal incentives for ethanol made from cellulosic feedstocks remain. These include a $1.01-per-gal subsidy for cellulosic ethanol production and Department of Energy loan guarantees for new ethanol refinery construction and R&D programs.

Another driver for ethanol production is the federal Renewable Fuels Standard, which requires that the U.S. produce 36 billion gal of ethanol by 2022. Of this, 15 billion gal must be based on corn kernel, a target the industry has already nearly reached. Some 16 billion gal must be cellulosic ethanol, a target the industry is far short of achieving. In late December, the Environmental Protection Agency used its authority to amend the standard and dropped the cellulosic ethanol requirement for 2012 to 8.65 million gal, far below the target of 250 million gal.

The U.S. has no commercial-scale cellulosic biofuels plants; technologies are only at demonstration scale.



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Pyotr Petrovich (January 5, 2012 10:07 AM)
Your text includes the claim "a growing number of environmental groups...note that corn-kernel-based ethanol generates about the same greenhouse gas output as gasoline". This is a highly debated opinion / war cry of the ethanol opponents - not a fact at all.

With or without American ethanol, world grain prices fluctuate. Politicians do not control weather. The concept that Americans should be responsible for growing grain to feed the world is absurd. Many, if not most poor nations do not have enough food because their governments are incompetent. The developed world has to increase foreign policy emphasis on developing nation agricultural policy. Punishing ourselves for not exporting ever greater amounts of free food only discourages farmers in poor countries.

USA corn exports are used almost entirely for meat production. Consumption of meat is not a sign of a starving population.
Don Heichel (January 5, 2012 1:02 PM)
Impressive that Valero Corp (not a bit player in ethanol or refining!) is spending $190 Million to build a joint venture with Mascoma (genetically engineered yeast par excellence!).

Mascoma, Valero launch joint venture for biofuels plant

Also, Westinghouse seems over the top optimistic on Plasma Gasification... MSW to ethanol, commercially! + other uses: search google; Westinghouse, plasma gasification

It's happening OPEC!
C. Gallaher (January 5, 2012 10:40 AM)
I do not understand how this would increase the price of gas--it is a failed Fed. program that cost tax dollars---it is an additive to gas that is unnessary----it has been proven that it damages gas engines by desolving rubber tubing and gaskets thus causing all kinds of problems with the fuel systems associated with the engine--I hope it disappears completely-----AMEN
Qwester (January 6, 2012 12:06 PM)
No one remembers that ethanol is necessary in gasoline as an octane booster. Today's higher compression engines could go back to tetra-ethyl lead if the greens want to I suppose or to MBTE which has severe drawbacks including cost and water table damage.

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