Free Markets, Free People


Ethanol subsidy axed

Or an alternate title: “A good start”.

The Senate voted 73-27 Thursday to kill a major tax break that benefits the ethanol industry, handing a political win to a bipartisan group of lawmakers that call the incentive needless and expensive.

The vote also could have ramifications on future votes to reduce the deficit. Much of the GOP conference supported Feinstein’s bill even though it does not include another tax break to offset the elimination of the ethanol tax credit.

[…]

Feinstein’s amendment to an economic development bill would quickly end the credit of 45 cents for each gallon of ethanol that fuel blenders mix into gasoline. The credit led to $5.4 billion in foregone revenue last year, according to the Government Accountability Office.

The amendment also ends the 54-cent per gallon import tariff that protects the domestic ethanol industry.

So we have actual bi-partisan agreement to end a subsidy and cut spending.   Good.  I’m also pleased with the fact that the tariff would be lifted.   This means less market distortion and real signals sent by that market as to whether or not ethanol is a viable product in the energy sector.  My guess is it is, however, not to the extent the subsidy made it.   It may also have an effect of lowering food prices as less corn production will probably go to ethanol than is now.

As the article points out, the issue is “more regional than partisan”.  That’s probably the case with many subsidies.   Let’s carry this on by hunting down a few more of those types of subsidies and immediately end them.  A few billion here, a few billion there and pretty soon you’re talking big money.

~McQ

Twitter: @McQandO

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10 Responses to Ethanol subsidy axed

  • Ending subsidies is good.  However, the requirement to have ethanol in gasoline is still there.  As a result cost of ethanol goes up and cost of gasoline goes up.  Obama’s plan to have european gas prices continues on schedule.

    • It won’t necessarily go up at all.  The tariff AND subsidy were both powerful market distortions.  Perhaps the price will actually go down.  We will know soon.  There will also be an effect on the price of human food, since the market will become a bit more rational now that the politics are somewhat less dominant.

  • I dont see how it will go down.  Subsidies drove the price down which means that the price to create ethanol will go up.  If not then the profitability to create it will go down thus lowering supply with demand remaining constant.  It is simply the law of supply and demand.    The price to create the same amount of ethanol has just gone up.  THat increase is no longer being paid via subsidies.  There fore the price of gasoline is going to rise.  Obama will not sign into law (if the Senate ever passed it) a bill that ends the requirement of ethanol in gasoline.

    • You are forgetting about the tariff side.  Foreign ethanol has largely been kept off the market, while our producers have been given above-market prices (subsidies classically cause surpluses).
      So, now we will see.

  • The subsidy was a tax deduction.  Ending them would be in effect a tax increase.

  • The Senate voted 73-27 Thursday to kill a major tax break that benefits the ethanol oil industry

    Fixed that.  No checks were cut directly to ethanol industry for this subsidy.  The checks went to the oil industry to buy it.  The requirement still exists.  From this part of the legislation, the farmers will still collect money from the oil industry for their ethanol as before.  It just become more expensive for the oil industry to put ethanol into their gas. 

    The tarrif which was meant to back out the subsidy that the oil folks received for putting ethanol in will bite into the ethanol industry marketshart, though. 

    • Thought I fixed that.  ‘ethanol’  in the first line should have been crossed out but it appears that formatting doesn’t carry through the comment. 

  • I’m all for ending the subsidy, but still leaving the mandate in place doesn’t seem right to me either. They are both market distortions and removing one is most likely to enhance the negative effects of the other I think. Somebody explain why that’s wrong please. Please?

  • Can I now have the choice of what I get to fuel my car, boat, airplane, lawn mower… with besides engine destroying ethanol? We are all paying extra per gallon to have this crap contaminate our fuels, to add insult to injury, ethanol has less BTU’s per unit, so on top of paying more per gallon, you can’t go as far on that gallon. Given this lose-lose equation, how can this possibly help America’s energy crisis? What do you get when you combine environ-MENTAL-ists and Big Brother Government? Insanity.

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