Senators Call for End to Ethanol Tariffs

Tightening budget scenarios make extension of ethanol tax credits more difficult in more conservative Congress.

Many in the ethanol industry are hoping Congress will consider renewing the Volumetric Ethanol Excise Tax Credit (VEETC) during the lame-duck session before it expires at the end of 2010. However, there is a growing sentiment after the November elections and ballooning deficits that spending needs to come down, and ethanol support might be one on the spending chopping block.

A bipartisan coalition of senators has called for an end to tariffs and subsidies supporting ethanol. In a letter sent to Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell, 17 senators expressed their lack of support for extending the current 54-cent-per-gallon tariff on ethanol imports and the 45-cent-per-gallon subsidy for blending ethanol into gasoline. Both provisions expire at the end of this year under current law.

The letter calls the tariff and subsidies “fiscally irresponsible and environmentally unwise,” pointing out their extension would increase the country’s dependence on foreign oil.

Although Sen. Jim DeMint, R-SC, was not a signatory of the letter, the conservative senator and favorite of the Tea Party, said in an email statement to the Washington Post, "Government mandates and tax subsidies for ethanol have led to decreased gas mileage, adversely effected the environment and increased food prices. Washington must stop picking winners and losers in the market, and instead allow Americans to make choices for themselves."

The senators letter stated, "If the current subsidy is extended for five years, the Federal Treasury would pay oil companies at least $31 billion to use 69 billion gallons of corn ethanol that the Federal Renewable Fuels Standard already requires them to use. We cannot afford to pay industry for following the law."

The senators added that according to a July 2010 study by the Congressional Budget Office, ethanol tax credits cost taxpayers $1.78 for each gallon of gasoline consumption reduced, and $750 for each metric ton of carbon dioxide equivalent emissions reduced. The Center for Agricultural and Rural Development at IowaStateUniversity recently estimated that a one-year extension of the ethanol subsidy and tariff would lead to only 427 additional direct domestic jobs at a cost of almost $6 billion, or roughly $14 million of taxpayer money per job, the letter said.

 A statement from the Renewable Fuels Association countered that according to a study by economist John Urbanchuk, domestic ethanol production returned $8.4 billion to federal tax coffers in 2009 - $3.4 billion more than the cost of the tax incentive. Additionally, economic activity generated by American ethanol production added more than $7 billion of tax revenue generated for state and local governments. At the same time, the domestic ethanol industry helped support nearly 400,000 jobs and provided more than $16 billion in increased household income.

The senators added that "the tariff on ethanol makes our country more dependent on foreign oil. The tariff is nine cents per gallon higher than the ethanol subsidy it supposedly offsets, and this lack of parity puts imported ethanol at a competitive disadvantage against imported oil. This discourages transportation fuel imports from Brazil, India, Australia, and other sugar producing countries, and leads to more oil and gasoline imports from OPEC countries that enter the United States tariff-free. Eliminating or reducing the ethanol tariff would diversify our fuel supply, replace oil imports from OPEC countries with ethanol from our allies, and expand our trade relationships with democratic states."

Addressing the concerns raised about the secondary tariff on imported ethanol, the RFA stated, “The tariff on imported ethanol is neither a burden on imports nor a factor driving America’s dependence on imported oil. The tariff simply exists to offset the value of the tax credit, preventing American taxpayers from subsidizing foreign ethanol producers. In a time of budget concerns and tax debates, propping up industries in other nations that already enjoy the largesse of their native governments seems counterintuitive.”

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