WASHINGTON — “With a mandate, ethanol tax credit subsidizes gasoline consumption, it subsidizes oil,” said Harry de Gorter, an adviser to the World Bank and World Trade Organization, during a presentation by the CATO Institute on Capitol Hill Thursday. “It actually hurts the corn growers.”
De Gorter’s research indicates biofuel tax credits raise the consumption of fossil fuels such as gasoline combined with ethanol. He teaches in the Department of Applied Economics and Management at Cornell University. Agriculture utilizes a lot of fuel and thus it costs farmers more to produce the corn necessary for the ethanol.
Cornell professor, Harry de Gorter presents his research indicating the biofuel tax credit subsidizes the oil industry and hurts ethanol corn farmers. (Photo by J. Okray/MNS)
Ken Collombini, communications director for the National Corn Growers Association, says he would question de Gorter’s assessment because ethanol is cheaper per gallon than gasoline. “It helps us – we’ll be out there in the fields with a combine anyway.”
The Volumetric Ethanol Excise Tax Credit was developed in 2004 and provides a 45-cent credit to registered blenders per gallon of ethanol blended with gasoline. This amounted to more than $5 billion last year, according to the Congressional Budget Office report. This tax credit expires at the end of December and is due for reassessment in Congress. De Gorter says if this is extended, it will cost taxpayers more than $30 billion in the next five years.
“We simply must keep in place those policies and programs that enable their continued expansion. As we develop a better understanding of the roles and interactions of policies such as tax credits and blending mandates, we will have the opportunity to adjust them. In the meantime, I support their continuation,” said Sen. Tom Harkin, D-Iowa in a statement.
There is a mandate for creation of ethanol in the U.S. brought on by the 2007 Energy Independence and Security Act. This provides a renewable fuel standard requiring minimal production of biofuel to be 8 billion gallons in 2008 and rises steadily to 36 billion gallons by 2022.
This mandate alone is sufficient to steady the corn market, according to de Gorter, and adding a tax credit to blenders is an unnecessary waste of billions of taxpayer dollars.
De Gorter said the tax credit along with the mandate offer no incentive for the oil companies to bid up the price of ethanol. The mandate prevents the price of ethanol from dropping, so the oil companies decrease the fuel price to vamp up consumption. The more fuel that is consumed, the more free money they collect from the government. “The priority should be not to have $31 billion subsidizing the oil industry,” he said.
“VEETC benefits corn growers because it increases the production demand for domestic ethanol,” said Collombini. He said the mandate stipulates renewable fuel produced internationally and domestically, and includes other forms of biofuels.
“I’ve seen various studies on the economic impact of the [biofuel] tax credit expiring. Most indicate a 30 percent loss in ethanol workers,” said Collombini.