Taxpayers are footing a hefty bill to pay for the government's efforts to replace gasoline with subsidized corn-based ethanol, according to a report by the Congressional Budget Office.
CBO calculates that biofuel tax credits cost about $6 billion during FY 2009, a figure that could come under fire when Congress considers whether to extend the ethanol subsidy, which is scheduled to expire Dec. 31. For example, Senate Finance Energy Subcommittee Chairman Jeff Bingaman (D-N.M.) issued a statement saying the CBO study "provides further evidence that our nation's biofuels tax incentives might not be appropriately calibrated."
And, Bingaman added, he sees corn ethanol as "a mature technology whose market share is protected by an aggressive renewable fuel standard," and that the CBO report should "prompt Congress to critically examine" the appropriateness of continuing the tax credit at its current level.
The government subsidy for ethanol is 45 cents a gallon, but the corn-based fuel is less energy efficient and producers need petroleum-based fuel to make it, so it's not accurate to compare the two on a gallon-to-gallon basis, CBO says.
"The cost to taxpayers of displacing a gallon of gasoline with a quantity of ethanol that provides the same amount of energy as a gallon of gasoline is $1.78, by CBO's estimate," the report says. By replacing gasoline consumption, ethanol does reduce greenhouse gas emissions, though, and the subsidies help out corn farmers and ethanol-producing companies, the report finds.
The report also notes that the biofuels industry no longer needs tax credits to drive production because the renewable fuel standard that mandates increasing use of biofuels in vehicles has encouraged investment by farmers and biofuels refiners by guaranteeing a market for their product. Tax credits may reduce costs to biofuel producers and consumers — at taxpayer expense — but will no longer drive production, CBO found.
The trade association that represents the ethanol industry, the Renewable Fuels Association, issued a statement saying that the CBO report "takes the issue of ethanol tax incentives out of context, providing no comparison to other technologies or contrasting the benefits of biofuels against the clear destruction wrought by fossil fuels."
According to RFA President Bob Dinneen, "All comprehensive analyses demonstrate that ethanol provides a real world, cost effective tool to reduce dependence on oil and create domestic jobs. Additionally, as CBO rightly notes, ethanol also reduces carbon emissions compared to gasoline."
The complete study and a summary are available on the Internet at this link.
