Senators move to eliminate ethanol subsidy and tariff

U.S. Senators Tom Coburn, M.D. (R-OK) and Dianne Feinstein (D-CA) Tuesday introduced the Ethanol Subsidy and Tariff Repeal Act, which will fully eliminate the Volumetric Ethanol Excise Tax Credit (VEETC) and fully repeal the import tariff on foreign ethanol. 

Cosponsors also include Senators Ben Cardin (D-MD), Richard Burr (R-NC), Jim Webb (D-VA), Susan Collins (R-ME), and James Risch (R-ID).

“The ethanol subsidy and tariff is bad economic policy, bad energy policy and bad environmental policy.  As our nation faces a crushing debt burden, rising gas prices and the prospect of serious inflation, continuing our parochial ethanol policy that increases the cost of energy and food is irresponsible. I’m pleased to introduce this common sense bill with Senator Feinstein and will push for its consideration at the earliest opportunity,” Dr. Coburn said, noting that the bill has been filed as an amendment (#309) to the small business bill pending in the Senate.  

“Ethanol is the only industry that benefits from a triple crown of government intervention: its use is mandated by law, it is protected by tariffs, and companies are paid by the federal government to use it.  Ethanol subsidies and tariffs sap our budget, they’re bad for the environment, and they increase our dependence on foreign oil.  It’s time we end subsidies that we cannot afford and tariffs that increase gas prices,” Sen. Feinstein said.

The VEETC is a de facto cash subsidy that directs 45 cents to refiners for every gallon of ethanol they blend with gasoline.  The VEETC costs taxpayers approximately $6 billion a year.  If the VEETC subsidy is repealed by July 1, 2011, as the Coburn/Feinstein bill calls for, it will save approximately $3 billion this year.  Nearly 40 organizations on the left and right, including the refiners who benefit from the VEETC subsidy, have called for the elimination of the subsidy.  

The ethanol tariff is comprised of a .54 cent Most Favored Nation duty and a 2.5 percent ad valorem tax.  The ethanol tariff makes our nation more dependent on foreign oil by increasing the price of imported ethanol.    

The Center for Agricultural and Rural Development at Iowa State University recently estimated that a one-year extension of the ethanol subsidy and tariff would lead to only 427 additional direct domestic jobs at a cost of almost $6 billion, or roughly $14 million of taxpayer money per job.