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PRI's Environmental News Magazine

Corn Ethanol Tax Credits

Air Date: Week of November 26, 2010

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Some government support for ethanol could stop flowing as a tax credit expires. (Photo: Spencer Thomas)

You might not think green groups, grocers, cattlemen and libertarians have much in common. But they’re working together against government support for corn ethanol: a six-billion dollar ethanol tax credit that will expire at year’s end unless Congress acts. Living on Earth’s Jeff Young reports.

Transcript

GELLERMAN: From the Jennifer and Ted Stanley Studios in Somerville, Massachusetts, this is Living on Earth. I’m Bruce Gellerman. With its Turkey Day break over, Congress returns to the lame duck session with corn on the menu.

A multi-billion dollar tax break for corn-based ethanol will expire at the end of this year unless Congress acts to extend it. That’s brought together an unlikely alliance working to end government support for what they call a wasteful and environmentally harmful fuel. Living on Earth’s Jeff Young reports.

YOUNG: They say politics makes strange bedfellows. Consider the scene at one recent congressional briefing on corn ethanol subsidies. A pro-business think tank and an environmental group often at each other’s throats, found they had something in common.


Ethanol advocates hope the government might break the so-called “blending wall” with more flex fuel vehicles.

MCMAHON: There’s something to be said when you can have Friends of the Earth and the Cato institute both briefing Congress together in the same room and saying, yeah, corn ethanol subsidies need to go.

YOUNG: Friends of the Earth ethanol campaign leader Kate McMahon says her group dislikes the polluted runoff from fertilizer and pesticides used to grow corn for ethanol. And she points to studies showing ethanol’s production generates more greenhouse gases than you’d get from burning gasoline.

MCMAHON: We have this idea in our heads that corn ethanol is good for the environment and good for climate but when you actually look at the numbers that’s just not the case.

GELLERMAN: The Cato Institute says ethanol subsidies distort markets. Associations for grocers and ranchers think ethanol pushes up corn prices, hurting their business. And anti-poverty groups say higher food prices hurt the world’s hungry.

All are working in some way to end ethanol’s so called blender’s tax credit, which gives 45 cents a gallon for fuel blended with ethanol. That adds up to about six billion dollars a year. The credit’s been around for decades, but Steve Ellis of the budget watchdog group Taxpayers for Common Sense, says he and other ethanol opponents have another powerful ally—a newly austere environment in Congress that makes finding offsets in the budget much harder.

ELLIS: Well, the deck is a little bit stacked against the corn lobby. The challenge is when they passed pay-as-you-go reforms, pay-go reforms, to spend more money on this tax credit they have to find offsets. And, offsets are hard to come by. So when it was perceived to be free by Congress (even though it cost us a lot of money) it went through. But now the fact that they have to pay the piper, there isn’t a lot of interest.

YOUNG: That has people like Tom Buis racing against time as the Congressional calendar ticks down. He’s head of growth energy, an ethanol industry lobbying group. Buis says congress should support the industry because it’s the only fuel alternative ready to reduce dependence on imported oil.

BUIS: Today’s ethanol production is ten percent, roughly ten percent of our entire gasoline usage in the United States, which is not insignificant at all. And, if you look at alternative fuels there are none. We’ve waited around on this far too long. It’s a national security, it’s an energy security, it’s a U.S. jobs security issue, and it’s an environmental issue.

YOUNG: But Buis’s argument about ethanol as a home-grown alternative to oil imports was undermined somewhat by news that the U.S. is now selling some ethanol abroad. Gregory Meyer at the Financial Times reported on a small but growing amount of U.S. ethanol exports.

MEYER: It is a bit of an odd turn of events that we are now exporting some of this ethanol everywhere from Canada to the Netherlands to the United Arab Emirates.

YOUNG: The exports aren’t much by volume, but it’s enough to anger European biofuels companies. They say the U.S. businesses benefit from the blenders tax credit then use a loophole in EU tariff law to send their subsidized product overseas. But Meyer says the underlying issue is that the U.S. has a glut of ethanol on market and policy that prevents greater domestic use.

MEYER: The US has kind of a biofuels policy that is at odds with itself. On the one hand, the law requires companies to blend 12 billion gallons of ethanol, but at the same time there’s a cap on how much ethanol you can blend into each gallon of gas.

YOUNG: In the ethanol industry this is known as the “blending wall.” There’s a law that says use the stuff. But EPA rules say only use ten percent, or E-10, in any given gallon. A higher mixture might damage older engines. The EPA is looking into whether E-15 fuel is ok for older vehicles. That decision’s expected early next year.


Some government support for ethanol could stop flowing as a tax credit expires. (Photo: Spencer Thomas)

Tom Buis at Growth Energy realizes his industry’s in a corn version of a catch-22. With the tax credit in trouble, he’s floated an idea for a different kind of government help to break down the blending wall. Support for flex fuel vehicles that can handle higher ethanol blends and service station pumps—called blender pumps-- that can deliver it.

BUIS: And a blender pump allows the consumer to choose the blend of ethanol that they want in with their fuel. The second part of it is the increased production of flex fuel vehicles in America, and that way a flex fuel vehicle can burn any blend that you want, from E 0 up to E 85. So you put power in the hands of the consumer.

YOUNG: Buis says this will reduce the industry’s reliance on tax credits and create more demand for ethanol made from cellulose from rather than corn. Cellulosic ethanol—made from wood chips, crop waste or grass—has a better environmental profile but it’s still too costly.

Ethanol opponents remain skeptical. But if the tax credit expires in December you can be sure the new Congress will get an earful about these ethanol ideas come January.
For Living on Earth, I’m Jeff Young.

[MUSIC: Steely Dan “Gaslighting Abbie” from Two Against Nature (Giant Records 2000).]

 

Links

A sampling of some competing studies showing different results for the energy and greenhouse gas benefits of ethanol. Study 1.

Study 2

Study 3

Study 4

EPA on ethanol

Growth Energy’s ethanol infrastructure proposal

 

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