Ethanol Subsidies: Coburn Proposes Time to Vote on VEETC

 If things hold to their course, the Senate will vote on Tuesday on an amendment by U.S. Senator Tom Coburn, (R-OK) to repeal the ethanol tax blender credit and tariff. If enacted, the provision would eliminate approximately $3 billion in subsidy this year and $6 billion annually. In order to be considered for a vote, the Senator and his supporters must get 60 votes, a requirement of the way the Senate does its business these days. 

The history and merits of the ethanol subsidies were reviewed a few weeks ago. In summary, the ethanol credit is no longer necessary and should be repealed. It is a poster child-like the “Bridge to Nowhere”- of excessive government largess at best and just shameful waste of money at worst. 

As previously noted, there are a number of federal programs supporting the production of ethanol. The 45 cents per gallon “blender credit” does not directly put money in the pocket of beleaguered farmers but instead essentially provides money for blenders who are already mandated by the Renewable Fuels Standard (RFS) enacted in 2005 to blend ethanol in fuel. (Hint: “Big Oil” for the most part). The RSF mandates that transportation fuel contain a specified amount of renewable fuel blended with gasoline. The mandated amount started at 4 billion gallons in 2005 and will eventually increase to 36 billion gallons of renewable fuel.

 The government has also seen to protect the ethanol industry by erecting trade barriers. In addition to the RFS requirement for ethanol, a duty on ethanol imports and a tariff also protects their domestic market. Passed in 1980, there is a $0.54 per gallon duty on imports plus a tariff worth 2.5% of the ethanol’s value. The tariff has been very effective in retarding competitive imports.

The most interesting part of this issue is not the ethanol subsidies themselves but the politics behind them. With the federal budget deficit beyond the pale, what sense does it make to continue this policy? There was a time when 6 billion dollars was deemed a lot of money. Well, at least, I think it still is.

Tomorrow we will see who is serious about curbing wasteful spending. We can give the farm states members a pass but for the rest, it is a litmus test in fiscal restraint. It will be quite revealing to examine the votes and the rationale of some who want to continue this folly