ethanol tariff

Post image for Ethanol’s Future and the Tax Credit Expiration

It’s now all but certain that the ethanol tax credit will expire at the end of the year, and the ethanol producers continue to claim credit for “giving it up” despite that it was obviously lost due to larger political considerations, and the fact that they lobbied initially for its extension and then eventually for a substitute which would have still funneled money into their industry. The tariff on ethanol imports also expires at the end of the year, and is likely to expire, though a bill was just introduced to extend it. It has no chance of passing through normal legislative means but its not impossible for it to be attached to larger omnibus bills in order to appease ethanol interests.

There are a few problems here. First, restrictions on trade are not normally good, but the fact that much of ethanol consumption is due to the renewable fuel standard mandate (and not market forces) complicates things. If imports of sugarcane ethanol are merely going to cut down on corn ethanol consumption/production, then it seems that the removal of the trade barrier would be a neutral/good thing. However, if imports of sugarcane ethanol require that Americans purchase additional ethanol relative to a baseline with the tariff, then an argument could be made for keeping the tariff. There are also other longer term political considerations: if sugarcane ethanol is kept out, the corn ethanol folks might lobby to lift the cap on corn ethanol and allow it to qualify as an advanced biofuel. Or, Congress might scrap the advanced biofuel RFS altogether as cellulosic ethanol is yet to exist.

[click to continue…]

Yesterday on this site I explained why a “Do Nothing Congress on Ethanol Would Do a Lot of Good.” I also mentioned that today, a coalition of free market groups would be publishing an open letter advising Congress to let the clock run out on tax favoritism and trade protection for corn ethanol.

The groups issuing the joint letter are the Competitive Enterprise Institute (CEI), Freedom Action, the American Conservative Union, Freedom Works, National Center for Public Policy Research, and National Taxpayers Union.

CEI’s press release appears below. It includes commentary by yours truly on Obama Agriculture Secretary Tom Vilsack’s announcement of new biofuel initiatives at a press conference this morning, a link to the coalition letter, and a link to video excerpts of a speech in 2006 by then Gov. Tom Vilsack. The video illustrates the famous French adage, plus ca change, plus c’est la meme chose (loosely translated, “The more things change, the more special-interest politics stays the same”).

CEI’s press release follows:


Nicole Ciandella, 202.331.2773
Tax-Subsidized Ethanol Boondoggle Set to Expire
Coalition Urges Congress to End Tax Breaks Tariff Protection for Ethanol


Special tax credits and tariff protection for ethanol are set to expire at the year’s end. To counter the corn ethanol lobby, which urges Congress to reauthorize these special-interest giveaways plus enact new mandates and subsidies, a coalition of free-market groups advises Congress to “do nothing” and let the clock run out on the tax credit and tariff.

The domestic ethanol industry currently enjoys a 45¢ per gallon “Volumetric Ethanol Tax Credit” (VEETC), which costs taxpayers $5-6 billion annually, and a 54¢ per gallon protective tariff, which prevents lower-cost Brazilian ethanol from competing in U.S. markets.

“Congress has a rare opportunity to avoid $25-30 billion in new deficit spending, ease consumers’ pain at the pump, and scale back political manipulation of energy markets by literally doing nothing,” the coalition told Congress in a letter today.

The groups issuing the joint letter are the Competitive Enterprise Institute, Freedom Action, American Conservative Union, Freedom Works, National Taxpayers Union, and National Center for Public Policy Research.

The coalition released its letter today because Agriculture Secretary Tom Vilsack held a press conference this morning announcing new Obama Administration biofuel initiatives.

Vilsack said the VEETC should be extended on a “short-term, fiscally responsible” basis, but would not define what that means. Similarly, he said the tariff should “eventually” expire, but would not propose a timetable for phasing it out.

“In 2006, when Secy. Vilsack was Governor of Iowa, he said the exact same things – that the tariff and tax credit eventually had to end,” said Marlo Lewis, Senior Fellow at the Competitive Enterprise Institute. “Gov. Vilsack didn’t say then when the phase out should start – and Secy. Vilsack is still not saying.” A video excerpt of Gov. Vilsack’s 2006 remarks on ethanol is available on Youtube.

“For fiscal, humanitarian, and environmental reasons, the ethanol tariff and tax credit must go,” said Lewis.

Read the full coalition letter here.

Congress has a rare opportunity to shave $25-30 billion from the national debt, ease consumers’ pain at the pump, and scale back political manipulation of energy markets by literally doing nothing.

At the stroke of midnight on December 31 of this year, statutory authority for the 45¢ per gallon Volumetric Ethanol Excise Tax Credit (VEETC) and the 54¢ per gallon tariff on imported ethanol will expire.

For economic, humanitarian, and environmental reasons, Congress should sit back and let the grim policy reaper sweep these special-interest giveaways into history’s dustbin, as I explain this week on National Journal’s Energy Blog.

Tomorrow, at the National Press Club, Agriculture Secretary Tom Vilsack will discuss the Obama Administration’s “strategy” to grow the biofuel industry.

I’ve seen no inside info on what Vilsack will say. However, the corn ethanol lobby is pushing for “reforms” that would not only reauthorize the tariff and tax credit but also mandate the production and sale of ethanol-fueled vehicles and provide new subsidies to build a gigantic ethanol pipeline network and install 200,000 ethanol fuel pumps at service stations.

Just in case Vilsack decides to join this bandwagon, and on general principles, the Competitive Enterprise Institute, Freedom Action, and other free-market groups will send an open letter tomorow urging Congress to embrace the unheard of option of doing nothing, thereby benefiting taxpayers, consumers, and the environment.

I plan to attend the Vilsack press conference. Will he come out swinging for renewal of the tariff and tax credit? Will he propose new mandates and subsidies? Or will he keep things vague? Stay tuned.