Will Congress Dethrone King Corn? (Or at least remove a jewel or two from his crown?)

by Marlo Lewis on December 9, 2010

in Blog

In Washington, D.C., Corn is King. Corn farmers receive all manner of farm subsidies: deficiency payments, direct payments, crop insurance premium subsidies, price support payments, counter-cyclical program support, and market loss assistance. Total price tag? More than $75.8 billion from 1995 to 2009, according to the Environmental Working Group.

king-corn

But that’s not all. Corn is the main feedstock for the production of ethanol, and Congress props up the market for ethanol in three main ways. First, the so-called Renewable Fuel Standard (RFS), which is actually a Soviet-style production quota, compels refiners to blend increasing amounts of corn-ethanol into the nation’s motor fuel supply. Almost 12 billion gallons of corn ethanol will have to be sold as motor fuel in 2011. Under current law, 15 billion gallons of corn ethanol will have to be sold by 2015.

Lest anyone suppose this is a good deal for consumers, the government’s own data reveal that if you own a flexible-fueled vehicle, you spend hundreds of dollars a year more to fill up the tank with E-85 (motor fuel blended with 85% ethanol) than if you fill it with regular gasoline. The reason is that ethanol has about one-third less energy than an equal volume of gasoline. I document all this in my Pajamas Media column, Ethanol’s Policy Privileges: Heading into History”s Dustbin?

One difference between a Soviet-era production quota and the ethanol mandate is that Soviet planners only tried to dictate production levels for five years at a time — the infamous “five year plans.” Our Corn Commisars have an even worse case of the fatal conceit, because the RFS is a 14-year plan, spanning 2008-2022 (or a 16-year plan if we include the ethanol mandate Congress enacted in 2005).

So this component of King Corn’s empire may be with us for some time.

However, two other policy privileges – a 45¢ per gallon blender’s tax credit and a 54¢ per gallon protective tariff on Brazilian sugarcane ethanol — are scheduled to expire at the stroke of midnight on December 31, 2010. A battle is now raging on Capitol Hill between defenders of the Statist Quo and a broad-based coalition of ethanol, food industry, humanitarian, taxpayer, and free market groups. The blender’s credit is refundable, meaning that it is paid by your tax dollars, to the tune of $6 billion a year. The Tariff prevents you from buying lower-priced cane ethanol, increasing your pain at the pump. The entire ethanol program inflates food prices, contributing to the hunger crisis of 2008, and has environmental impacts that rival or exceed any associated with petroleum consumption (see here, here, here, and here). For these and other reasons, the reform coalition says it’s time for the tariff and tax credit to face the grim reaper.

In the past, King Corn held sway almost without opposition. But the number and diversity of groups, policymakers, and opinion leaders calling for an end to the two special-interest giveaways is truly impressive. Some 60 organizations from across the political spectrum signed this letter urging Senate leaders to let the tax credit expire. And a bi-partisan group of 17 Senators signed this letter calling for an end to both special-interest giveaways.

On the House side, Rep. Joseph Crowley (D-N.Y.) has written a “dear colleague” letter that is now making the rounds:

Dear Colleague,
 
I hope you will join me in the sending the below letter urging an end to U.S. subsidies for corn ethanol and the tariff on imported ethanol.   Subsidizing the diversion of our nation’s food supply from food to fuel puts serious upward pressure on food prices – costs that create an unfair burden on working families.  I also wanted to draw your attention to today’s editorials on this issue:

New York Times
December 9, 2010
Good Energy Subsidies, and Bad
 
Washington Post
December 9, 2010
Wasting tax dollars on ethanol

Chicago Tribune
December 9, 2010
End the binge: Aid to ethanol has gone on too long.”

To join this letter, please have your staff contact Jeremy Woodrum in my office at Jeremy.woodrum@mail.house.gov or (202) 225-3965.
Sincerely,
 
Joseph Crowley
Member of Congress
 
==================================
Nancy Pelosi
Speaker
U.S. House of Representatives
 
John Boehner
Minority Leader
U.S. House of Representatives
Dear Speaker Pelosi and Leader Boehner,

We want to express our strong opposition to extending the Volumetric Ethanol Excise Tax Credit (VEETC) and the tariff on imported ethanol. 

This year, the U.S. will divert nearly 40 percent of the domestic corn crop from food and feed to fuel, which will contribute to already increasingly volatile and high commodity prices.  According to the Congressional Budget Office (CBO), corn ethanol production accounted for 10-15 percent of the increase in food prices between April 2007-April 2008 and $600-900 million in additional costs to the Supplemental Nutrition Assistance Program and other child nutrition programs in 2009 alone.

Higher food prices hurt Americans, particularly those who can least afford it, such as those on public assistance and working families. 

In addition to escalating food and commodity prices, corn ethanol is not a cost-efficient way of achieving environmental benefits.  A July 2010 study by the CBO found that every gallon of ethanol used to replace gasoline costs the Federal government $1.78 – adding up to billions for American taxpayers.  Ethanol also does little to combat climate change, causing more global warming pollution than the gasoline it replaced. 

We believe it is time to end or significantly reduce the subsidy for corn ethanol and the tariff on imported ethanol.  We look forward to working with you to promote the development of truly sustainable advanced bio-fuels that meet both our food and environmental needs.

Sincerely,

Crowley’s letter concisely makes the key points. It also spotlights the fact that even the New York Times, the Washington Post, and the Chicago Tribune, all proponents of big-government liberalism, think it’s time to end the ethanol spending binge.

Charlie Peters December 9, 2010 at 9:05 am

Corn fuel ethanol stinks

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