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Letter of Support: Reps. Herger and Crowley Repeal of Ethanol Subsidies, H.R. 2307

July 14, 2011 J

Dear Representatives Herger and Crowley,

On behalf of more than 1.7 million Americans for Prosperity activists in all 50 states, I write to commend you for your recent introduction of H.R. 2307, the Ethanol Subsidy Repeal Act. Your bill would finally bring an end the federal government’s tax subsidies for the use of corn-based ethanol as a source of fuel, a drawn-out and ultimately wasteful exercise in centralized economic planning that has been going on since the 1970s.

The first ethanol tax credit was introduced in 1978. But more than thirty years later we must conclude that ethanol has not lived up to the hype. The government support has done little to reduce oil imports or drive down prices at the pump. Instead, they have simply distorted economic decision making in American energy markets and diverted capital towards unproductive uses dictated by Washington bureaucrats instead of American consumers. Diverting corn from the food supply has also been linked to higher food prices Americans are currently seeing on their dinner tables.

Even ethanol’s environmental benefits have been seriously called into question, with leading environmental groups such as Friends of the Earth, the National Wildlife Federation, the World Wildlife Fund, the Sierra Club, and the Environmental Working Group now opposed to the fuel.

However, the federal government has refused to give up on its special treatment for ethanol, repeatedly reauthorizing targeted support for its producers over the years. In fact, the ethanol industry currently enjoys a “triple crown” of federal government support. Your bill would repeal two of these prongs: the Volumetric Ethanol Excise Tax Credit that pays producers 45 cents per gallon of ethanol they blend into gasoline and the protectionist 54-cent tariff and 2.5 percent ad valorem tax that shields domestic ethanol producers from competition from more cost-effective sugar-based ethanol produced abroad.

AFP also supports eliminating the third way the federal government props-up consumer demand for ethanol beyond what the market would bear: the Renewable Fuel Standard. By law, 36 billion gallons of fuel derived from renewable sources must be blended into the nation’s transportation fuel supply by 2022, with the lion’s share of that volume composed of corn-based ethanol. The benefits of repealing ethanol tax subsidies will not be fully realized until this equally-pernicious third prong of government ethanol support is eliminated. As long as consumers are forced to buy ethanol products, producers will remain protected and will continue to blend more ethanol than consumers really want. We urge you to add language to your bill that would repeal this government mandate as well.

Moreover, while we understand your inclination to narrowly-target repeal efforts to win further political support, the broader language in Coburn-Feinstein legislation recently received an impressive 73 votes in the Senate. It doesn’t make sense to limit your bill’s impact when it should expect to receive even more overwhelming support in a conservative House of Representatives. We encourage you to go at least as far as Coburn-Feinstein in cutting subsidies by removing the narrow carve-out your bill provides for continued government support for methanol blenders.

Nevertheless, H.R. 2307 takes some very significant strides in the right direction, acknowledging that the government should not pick winners and losers in American energy markets. 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 government handout.

Americans for Prosperity is proud to support your legislation. I urge your colleagues to support H.R. 2307, and I look forward to working with you in the future.

Sincerely,

James Valvo
Director of Government Affairs
Americans for Prosperity

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