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GAO: corn ethanol is risky and tax credit unnecessary

Nathanael Greene

Posted October 5, 2009

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On Friday, the Government Accountability Office released a major report largely about the risks of expanded corn ethanol: Biofuels: Potential Effects and Challenges of Required Increases in Production and Use. Unfortunately, as the report points out, beyond lifecycle GHG emissions, EPA is not required to evaluate any environmental impacts as it implements the 36 billion gallon RFS2 mandate. Perhaps most disturbingly, the nonpartisan investigative arm of Congress points out that as we blindly rush ahead with this huge federal mandate, we're also giving corn ethanol and the oil companies a huge tax credit to bring us the ethanol they are supposedly mandated to bring us. That's right; last year we, the tax payers, gave up $4 billion to oil companies and the corn ethanol industry so that they would force feed us ethanol that they were legally required to to force feed us. It's a mandate and a bribe, and by 2015 the tax credits will cost us about $6.7 billion a year.

And here's the best part: the report says that bribe--I mean tax credit--isn't even doing any thing. Per the report: the tax credit "may no longer be needed to stimulate conventional corn ethanol production because the domestic industry has matured." And the industry has a mandate for its product.

Here's a little bit of what the GAO report has to say about biofuels:

For agriculture, many experts said that biofuels production has contributed to crop price increases as well as increases in prices of livestock and poultry feed and, to a lesser extent, food. They believe that this trend may continue as the RFS expands. For the environment, many experts believe that increased biofuels production could impair water quality--by increasing fertilizer runoff and soil erosion--and also reduce water availability, degrade air and soil quality, and adversely affect wildlife habitat; however, the extent of these effects is uncertain and could be mitigated by such factors as improved crop yields, feedstock selection, use of conservation techniques, and improvements in biorefinery processing.

Of course the folks over at Growth Energy--the new super aggressive lobbying arm of the corn ethanol industry--are desperately afraid that Congress will start to wonder why they are mandating the oil companies buy corn ethanol and bribing them to buy it too. Here's one of my favorite quotes from an article on the GAO report over the weekend:

The tax credit “isn’t up for renewal until next year, and we believe that discussion is best left for then,” Chris Thorne, director of public affairs for pro-ethanol group Growth Energy...

So here's a simple proposal: let's end the Volumetric Ethanol Excise Tax Credit and the biodiesel tax credit and the alternative alcohol fuel tax credit and the ethanol import tariff (which is now more than ever just a subsidy for corn ethanol) and even the cellulosic biofuel tax credit. All of these tax credits just give tax dollars away for volumes of fuel that are already required by law under the RFS2. Instead let's create a new technology-neutral tax credit that pays for better environmental performance. As I mentioned earlier, under the RFS2, EPA can only look at GHG impacts of biofuels, but as the GAO report makes clear, biofuels can be damaging across the board. However, the GAO report also makes clear that there are things we can do to reduce these impacts, and I think maybe even make biofuels a beneficial part of our land-use.

I mentioned this basic idea when I testified before the Senate on the RFS2 a year ago, and I'm going to write more about it here soon. Taking money away from the oil and corn ethanol industries is probably near impossible, but maybe the tax credits are so wasteful at this point that reforming them is an impossibly obvious idea.*


*My second favorite quote regarding the report come from an industry analysts hack in this article who suggests that taking the tax credit away will hurt "consumers" forgetting that the $4-6 billion has to come from somewhere. That would be us tax payers, who are also shockingly enough consumers!

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John ValenteOct 5 2009 10:33 AM

The GAO report is soft on corn ethanol. A decade ago, the GAO did a study that pointed out that corn ethanol had already received over $11 BILLION in subsidies (see And now, at the clip of over $5 BILLION a year, one has to wonder how much is enough...

Loni KempOct 5 2009 04:55 PM

My favorite quote of the week came from the Des Moines Register yesterday: “Meanwhile, NCGA is pressing forward to expand the market for ethanol. The growers say there should be enough corn available to produce 25 billion gallons of ethanol by 2030, making it imperative for growers to get policies in place that will allow that much of the fuel on the market.” I wonder when they will ask to raise the RFS mandate for corn ethanol from 15 to 25 billion gallons?

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