Quash the Ethanol Beast in Honor of Iowa Caucuses

As the clock struck 12 am January 1, one of the most anti free market government interventions expired without renewal and without fanfare.  In honor of the Iowa Caucuses, we can now declare that the ethanol subsidies and tariffs are finally dead.  However, before we celebrate this rare piece of good news, we must remember that in order to deracinate the ethanol beast from our midst, we must destroy its third leg; the 10% blenders mandate.

Over the past decade, ethanol has been the poster child for the worst aspects of big-government crony capitalism.  The ethanol industry has used the fist of government to mandate that fuel blenders use their product, to subsidize their production with refundable tax credits, and to impose tariffs on more efficient sugar-based ethanol from Brazil.

This onerous mega-intervention on the part of government has had a devastating effect on the price of food and gas and it has forced consumers to purchase inefficient and often damaging fuel.  Yet worst of all, it has enriched an industry that would have otherwise faltered in the natural order of the free-market.  Ethanol production has increased 719% during the past decade, as almost half of all corn grown in the country is diverted for this unnatural and odious use of a product that was traditionally grown for livestock feed.  Government-backed venture socialism is indeed a powerful force.

Ethanol blenders have benefited from the 45-cent per gallon Volumetric Ethanol Excise Tax Credit (VEETC), which may be refundable for those companies that lack any excise tax liability.  The ethanol industry has pocketed over $45 billion in subsidies since 1980, with a $6 billion annual price tag in recent years.  Additionally, all foreign ethanol imports incurred a 54-cent-per-gallon import tariff, which coupled with a mandatory 2.5% ad valorem tax, adds up to an increased cost of about $0.60 per gallon.

These two policies are unlikely to be renewed; however, the most egregious part of the three-legged ethanol beast –the mandate – is still intact.  Industry leaders are employing a rope-a-dope strategy vis-à-vis the subsidies, while launching a counterattack to double down on the mandates.  They must be stopped.

Under current law, the federal government mandates that 10% of fuel contain ethanol.  This is on top of the generic mandate that requires the consumption of 36 billion gallons of renewable fuels by 2022.  All these government interventions and coercions have had such a tendentious effect on ethanol production, that there is now a massive surplus of domestic ethanol.  By far, the tyrannical mandate requiring everyone to use this ineffectual product is more effective than the subsidy or tariff.

Now, the ethanol industry is planning an aggressive lobbying effort to expand the mandate in order to sell off their government-sponsored surpluses.  Tom Buis, CEO for the industry group Growth Energy, revealed that the new agenda “is opening up the market place with E15 (15% ethanol blend), and flex pumps and flex fuel vehicles.”  Such an increase in ethanol concentration will have a dangerous effect on automobile engines, yet these leeches only care about their bottom line.

While expansion of the mandate is an uphill battle for ethanol peddlers, they will use the inevitable price increase at the gas pump as casuistry for their agenda.  Repeal of the subsidy for ethanol blenders will increase the cost of gas, even though ethanol is an ineffectual and inefficient fuel mixture that has engendered higher gas prices.

Sound confusing?  It’s actually quite simple.

In the real world of the free-market – one in which we would use 100% petroleum – gas prices would necessarily decrease. However, as long as the mandate for 10% ethanol concentration is left intact, we will be forced to purchase this more expensive fuel, albeit at a higher price, due to the expiration of the subsidy.  Industry lobbyists will use this counterintuitive argument to promote an increase to the destructive E15 mandate.

House Republicans must preempt this act of aggression by repealing the sections of the Energy Policy Act of 2005 (EPAct, P.L. 109-58) and the Energy Independence and Security Act of 2007 (EISA, P.L. 110-140) that mandate ethanol fuel blends.  In fact, they should probably repeal those laws entirely.

Not only is this good policy; it is good politics (outside of Iowa).  This is a quintessential opportunity for Republicans to stand on principle on an issue that resonates with populist factions on both sides of the aisle.  There is no better example of how government regulations and corporate welfare are used to enrich a select few – to the detriment of all American consumers – than the ethanol boondoggle.  There is no worse form of tyranny than using the boot of government to force consumers to purchase a particular product.

Republicans should not squander this teachable moment and unique opportunity to completely kill ethanol while it is unpopular.

Get Alerts