Ethanol subsidies not renewed. Taxpayers and families hardest hit

When the United States Congress adjourned on Friday, December 23, 2011, it allowed ethanol subsidies to expire at year end after thirty-three expensive years for taxpayers and consumers. Estimates of the program's direct cost over that time exceed $45 billion.

But don't rejoice just yet. Allowing the subsidies to expire only allows members of Congress to gain some points with ethanol critics and to avoid the embarrassment of defending the indefensible without really penalizing an industry which has been very generous to incumbents.

Since the inception of the program in 1978, ethanol subsidies have ranged between forty and sixty cents per gallon. Recently the subsidy was set at forty-five cents. Tariffs on imported ethanol have also protected a domestic industry whose renewable product cannot compete in open energy markets without government support. Ethanol is a product which diverts food for fuel, raising the prices of both while degrading rather than improving the environment.

11.1 billion gallons of ethanol were blended into motor fuel in 2010. The Energy Independence and Security Act of 2007 mandates the use of 15 billion gallons in 2015. 36 billion gallons of ethanol are mandated for 2022.

The E-10 federal mandate remains in place, but without the ethanol subsidy -- at least for now -- so the pump price for fuel must go up if the usage mandate is to be met.

The head of an ethanol trade group has said that the industry would survive without the credit. Of course it will -- and with continued government help. The ethanol industry has poured millions into congressional campaigns to get and keep the subsidies. These people will not lose their benefits easily -- or at all. Fortunately for ethanol special interests, the loss of their subsidies means very little so long as there is a federal mandate for total ethanol usage, along with the annual increases provided for in the Energy Independence and Security Act.

Here's where it gets tricky (trickier?) for taxpayers and consumers: If the federal government saves more than $2 billion annually from the expiration of ethanol subsidies, the money will still be spent, but on something else. It always is. We will probably see an increase in the cost of the fuel we purchase as a result of the expiration of ethanol subsidies, but the government savings will not be returned to us in tax breaks to offset the higher prices. Because the usage mandate and the tariff on foreign-produced ethanol remain in effect, ethanol will not go away; there will be no softening of demand for corn; and, accordingly, the cost of food will continue to go up along with the annual increase in the mandate.

Politicians and special interests still win. Taxpayers and consumers keep losing. It's past time to change that intolerable calculus.