Letter of Support: Coburn-Feinstein Ethanol Subsidy and Tariff Repeal Act, S. 871
Dear Senator Coburn and Senator Feinstein,
On behalf of more than 1.7 million Americans for Prosperity activists in all 50 states, I write to applaud your recent introduction of S. 871, the Ethanol Subsidy and Tariff Repeal Act.
The ethanol industry currently enjoys a “triple crown” of support from the federal government: its use is mandated by law under the Renewable Fuel Standard; it is protected from foreign competition with a 54 cent import tariff alongside a 2.5 percent ad valorem tax; and a Volumetric Ethanol Excise Tax Credit that pays producers 45 cents for every gallon of ethanol they blend into gasoline. Your bill would repeal two of these measures: the tax credit costs nearly $6 billion each year and the protectionist tariff that shields domestic ethanol producers facing competition from more cost-effective sugar-based ethanol from abroad.
While your bill goes a long way towards eliminating inefficient ethanol subsidies, AFP also supports eliminating the third prong of government support for the industry – the mandated Renewable Fuel Standard. To that end, we encourage you to consider adding language to the bill that would remove this government mandate as well. Additionally, AFP also vigorously opposes efforts to shift tax preferences from these measures to other types of subsidies for the industry, such as fuel pumps or other ethanol infrastructure. Ethanol has enjoyed government protection for far too long; it’s time for the technology to prove its value on the open market like every other product without the government propping them up.
Targeted industry handouts like these are rarely good policy because they distort economic decision-making, substituting the arbitrary judgment of politicians and bureaucrats for the legitimate, individually-calibrated preferences of millions of consumers. In the case of ethanol, the associated costs are very significant: the CBO has concluded that taxpayers are on the hook for $1.78 for every gallon of ethanol that replaces a gallon of gasoline.
Moreover, the economic distortions created by government subsidies tend to have unsavory and unintended consequences. For example, diverting corn from food to fuel has been linked to the higher food prices Americans are currently seeing at their dinner tables. Two recent studies, including one from the EPA, estimate that government subsidies for ethanol are directly responsible for raising corn prices by 7 to 8 percent, and this doesn’t include the additional 22 percent increase in prices due to supply and demand pressures as corn is diverted for use in ethanol blending.
These corn price increases drift over to other food products as well: increased cost of animal feed has contributed to higher prices for pork, beef, dairy, and poultry products. It’s no wonder that food prices have shot up in the last year, seeing an across the board 3.6 percent increase that takes money right out of the pockets of American families.
Even ethanol’s supposed environmental benefits have been called into serious question. In theory, ethanol burns cleaner than standard gas in cars, producing less direct pollution, but when the indirect effects of refining pollution, land-use change (i.e. cutting down forests to grow more corn), and water use are taken into account the picture on the overall environmental impact assessment changes. One study that included these indirect impacts found that total ethanol emissions were actually 93% higher than those from gasoline. For this reason, leading environmental groups such as the Friends of the Earth, National Wildlife Federation, World Wildlife Fund, the Sierra Club, and the Environmental Working Group now stand opposed to the subsidy. As the National Resource Defense Council recently explained, “At its best, corn ethanol is not that much better than gasoline on a climate basis, and certainly not good enough to warrant the soil degradation, water resource depletion, and water pollution it continues to cause.”
While AFP always hesitates to support legislation that will result in more federal revenues, the nature and extent of ethanol subsidies is so egregious that it warrants immediate elimination. I urge you to find offsets commensurate with the size of the revenue increase, but if the final vote on removing the subsidies did ultimately result in a revenue increase AFP would still urge senators to support it.
If ethanol subsidies distort our energy economy, hit consumers with higher food prices, and fail to produce their touted environmental benefits, then they certainly can’t be right for America. It’s time to end this inefficient government handout.
Americans for Prosperity is proud to support your legislation and we hope you will include a repeal of the Renewable Fuel Standard as well. I urge your colleagues to support S. 871 and I look forward to working with you in the future.
Director of Government Affairs
Americans for Prosperity