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Ethanol Subsidies: The Non-Issue in Iowa Caucuses

A quiet end to U.S. tariff on imported ethanol and to the ethanol blending subsidy

2 min read
Ethanol Subsidies: The Non-Issue in Iowa Caucuses

Notably absent from the seemingly endless Republican campaigns in Iowa, which concluded last night with Mitt Romney narrowly edging out a surging Rick Santorum, was any controversy about corn ethanol subsidies or indeed farm subsidies generally. Considering that biofuels policy has been a hostage to midwestern farm interests for as long as anybody can remember, the complete absence of debate over subsidies was arguably more astounding than anything else that happened in the nation's opening presidential race. Basically prices for farm products are high, driven up in no small part by demand for ethanol, which now accounts for about 40 percent of corn production. So farmers are unworried about their prospects, and evidently ethanol manufacturers are confident of their ability to keep delivering product without some of the governmental largesse they have long enjoyed.

Reflecting the new situation, the Financial Times ran a story on the last day of 2011 with the headline, "Republicans target farm subsidies in Iowa."  Four years before, the headline on a similar FT Iowa caucus story read, "Ethanol fuels rivals' push for Iowa caucuses."

Because of this radically transformed political environment, the Federal government's $6-billion-annual blender's subsidy for those who mix ethanol into gasoline sold at the pump was allowed to expire on December 31, along with a stiff import tariff that mainly affects Brazilian cane ethanol. For anybody who favors free markets or is worried about some ramifications of biofuels--notably their long-term impact on world food prices--this is good news indeed. (So too is the gradual withering of general farm subsidies--the controversial program that, since the New Deal, has paid farmers not to farm.)

Other ramifications of the changed political environment may not be so positive. Also expiring at the end of 2011 were the production tax credit for wind-generated electricity and the 1603 Treasury grant program that reimburses solar project developers 30 percent of their costs up-front. Those subsidies have expired before and may yet be renewed in the coming weeks, but that's not a given in today's gridlocked political environment, in which Republicans and Democrats--Republicans especially--seem determined to prevent the other side from taking credit for any constructive action. The American Wind Energy Association claims that with the credit, the U.S. industry could add up to 100,000 new jobs in the next four years.

As for the 1603 program, the Solar Energy Industries Association says it "awarded over 3,600 grants totaling $1.5 billion for more than 22,000 individual solar projects in 47 states and has supported over $3.5 billion in private investment. [A] ... one-year extension of the program would create an additional 37,000 jobs in 2012 in the solar industry alone. In addition, a one-year extension would result in nearly 2,000 additional megawatts (MW) of solar installations above baseline by 2016, enough to power 400,000 homes."

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