skip to main content

→ Top Stories:
Fracking
Safe Chemicals
Defending the Clean Air Act

Nathanael Greene’s Blog

Must-read on biofuel tax credit reform

Nathanael Greene

Posted February 19, 2010 in Moving Beyond Oil, Solving Global Warming

Tags:
, , ,
Share | | |

Robert Rapier has a great blog on the redundant and ridiculous biofuels tax credits, which given our huge Renewable Fuel Standard pay the oil companies to do what they’re legally obliged to do. I’ve written about the need to reform the biofuel tax credits (here, here, and here), especially the Volumetric Ethanol Excise Tax Credit (VEETC)—the main tax credit that overwhelmingly goes to corn ethanol. But Rob does a great job of crystallizing the wasteful situation we find ourselves in. He likens having the tax credit for fuels that are already mandated to paying people to obey the speed limit.

Not surprisingly, Rob’s original essay on this was targeted by Growth Energy with some wonderfully weak counter arguments, which he shreds in the blog. I say not surprising, because the ethanol industry has made it clear (PDF, see toward end) that extending this tax credit is its highest priority for the year.

At the end of his blog, Rob challenges Growth Energy to a debate the following  resolution:

Resolved: The ethanol mandates enacted by the U.S. federal government have eliminated the purpose of the ethanol subsidies.

I hope that the industry will take Rob up on his challenge. It would be entertaining. But his resolution highlights a slight difference between my take away from the current silliness. I certainly agree that the tax credits as currently structured are just wasteful, but I think they should be reformed to actually provide tax payers with some real value. To my mind, the tax credits (all of them—biodiesel, cellulosic, small producer, VEETC—all of them) should be reformed to a technology-neutral, performance based credit that pays half for climate benefits and half for ecosystem services.

By definition, paying for performance is going to put farmers more in the picture here; their performance growing crops is critical to the lifecycle performance of biofuels. As Rob points out, even the ethanol industry has acknowledged (when convenient to them) that farmers don’t benefit from the current tax credits, but oil companies or biofuel refiners had to buy better grown biomass to get higher tax credits, they would have to negotiate with the farmers to get it.

So, let’s use tax credits to drive dramatic improvements and new and better biofuels and do it in a way that we’re getting money to farmers instead of paying oil companies to obey the law.

Share | | |

Comments

Brooke ColemanFeb 22 2010 06:48 PM

Hi Nathanael,

I understand the value of your idea but do not understand the incredulous nature of your posts.

It's as if you expect the industry -- any industry really -- to suddenly just give away (or modify) its subsidies because the policy landscape has changed. As you know, nobody (nuclear, coal, oil, renewables) does this for at least two reasons: (1) subsidies are valuable in a highly subsidized energy marketplace in which everyone has them; and, (2) giving them away absent comprehensive subsidy reform does not make business sense for the individual sector, as annoying as that may be.

Shining the light of disdain on virtually any current energy subsidy is easy. It all depends on the lens you use (climate stupid but jobs smart?) to critique it, and these subsidies can be made to make sense or no sense by changing lenses (perhaps inspired by a change of policy).

To me, the real question is how do we get to the point of comprehensive energy subsidy reform so that the individual squirrels are forced to come to the table instead of reflexively protecting their stash of nuts? I think it starts with selling the idea to the public and politicians. While firing up up the angst in the outside halls of public opinion, I don't think pulling at threads and bashing the industries that don't magically capitulate to a "you first" approach will help.

That said, I share your frustration about U.S. energy subsidies and appreciate it very much when you point out the ones that go to multi-national, billion dollar oil companies to send jobs and dollars overseas.

Russ FinleyFeb 24 2010 12:22 PM

Brooke,

"..I don't think pulling at threads and bashing the industries that don't magically capitulate to a "you first" approach will help..."

Your premise is built on a strawman argument. Nobody expects the corn ethanol industry or any other industry "to suddenly just give away ... its subsidies.."

They will have to be taken away by a legislative body more powerful than each respective lobby, with each lobby spending millions to fight them.

The subsidy per unit energy for corn ethanol dwarfs that for oil. Unless you are a corn farmer or an ethanol refiner, or politician from the corn belt, there is nothing positive about corn ethanol.

Dropping all subsidies for oil would have no measurable impact on anything. Dropping them for corn ethanol would end a 30-year boondoggle.

Corn ethanol creates jobs with tax dollars in the same sense that you can pay people to dig holes and fill them back in. It's welfare wrapped in a flag.


Brooke ColemanFeb 26 2010 10:30 AM

Russ,

I can always count on a response from you. But you're kind of missing the point.

Of course they will need to be taken away by political consensus (and more obviously, I was not arguing that corn ethanol would give them back). But to achieve that, a consensus building approach is necessary, as opposed to a frustrated piecemeal approach (which will never create that consensus, or meaningful change, but is good for one thing: blogs). That was my complaint about NG's post.

In general, your response proves the point. You choose the lens of "subsidy per unit of energy" to make the subsidy look silly. Ok. Given. If $ per unit of energy is the point of energy subsidies, then you're right: oil wins. Of course, that's not counting the dollars lost overseas every time a U.S. consumer buys a gallon of gasoline, or that the public has to foot the bill for maintaining overseas security, including protecting pipelines and shipping lanes, so that crude is delivered without interruption and Exxon can make billions when it gets here. Why do we subsidize? Jobs? Carbon? Petroleum reduction? Rural economic development? National security? Innovation? Pick a lens and the value of the public investment will change.

Curious that you dismiss oil subsidies. So you think Exxon should not be paying a category of tax that a mom and pop start-up shoe store must pay? Exxon should be able to write off prospecting, but alternative energy companies cant? I dont get it.

Let's play the "drop the subsidy game." Drop them for nuclear, the industry caves. Drop them for wind and solar, the industry cannot compete on price. Drop them for ethanol, it cant compete at oil prices below $60/barrel. Drop all public welfare for oil? They have to pay the same taxes other businesses pay. They have to protect their own resource, including pipelines and shipping lanes (plenty of private "war contractors" would take the job, it would just be expensive). If this will have "no measurable impact on anything" ... let's do it. If oil doesn't need them to compete, they should give them back.

Russ FinleyFeb 27 2010 11:09 PM

".. You choose the lens of "subsidy per unit of energy" to make the subsidy look silly .."

I would not call it a "lens." It's a ratio. I used it to put into perspective how little subsidy oil actually receives per unit energy (or less accurately, per gallon) compared to corn ethanol. I'm all for dropping all oil subsidies, although the impact of doing so would hardly be noticed by consumers with the oil companies making a few cents less profit per gallon.

".. dollars lost overseas every time a U.S. consumer buys a gallon of gasoline, .."

That's called free trade. We are free to pay for grapes in winter, cheap computers made in China.

We could make it illegal to buy oil from the Middle East (or computers from China for that matter). We don't because we would have to pay even more to buy those things elsewhere. Every gallon of gasoline displaced by corn ethanol cost taxpayers an extra 50-60 cents per gallon on top of the gasoline retail price and if that is not true then why support the blending subsidy? Removing it would add about eight bucks to the price of a flex-fuel SUV E85 fill up, which might further dampen what little consumer enthusiasm there is for ethanol.

Our own government is literally forcing us to use corn ethanol via mandates after forcing us to subsidize it. It is a remarkable level of peace-time government interference in the market.

".. or that the public has to foot the bill for maintaining overseas security .."

The argument that our gargantuan military budget is a subsidy to oil is absurd. I have not noticed any reduction in military spending as a result of increasing ethanol production. The world is flat. Oil is fungible. Stability in the Middle East is paramount to the economic well being of all trading partners. We can't abandon efforts to maintain that stability regardless of how much we import from that region.

".. Why do we subsidize? Jobs? Carbon? Petroleum reduction? Rural economic development? National security? Innovation? .."

Jobs

You could pay a hundred-thousand people $40,000 a year to dig holes and fill them back in with that $4 billion subsidy.

Carbon

Corn ethanol produces as much or more GHG than gasoline.

Petroleum reduction

By that I assume you mean a reduction in petroleum imports. The price paid by consumers for corn ethanol nullifies any purported benefits from importing less petroleum, assuming you can prove ethanol has reduced the amount imported:

http://i-r-squared.blogspot.com/2009/09/does-ethanol-reduce-petroleum-imports.html

Rural economic development

There is no moral, economic, or legal obligation, or imperative to funnel money to those who choose a rural lifestyle instead of move to urban areas to seek employment as most Americans have chosen to do.

http://biodiversivist.blogspot.com/2009/10/myth-of-american-farmer.html

National security

Corn ethanol has done absolutely nothing to improve our national security. Big biofuel has been fanning the flames of xenophobia to hawk their product. The victims of that propaganda think Iraq was connected to 9/11 and don't know that we haven't imported oil from Iran since 1979. They are unaware that Saudi Arabia and Kuwait were our allies in our last two wars (the oil kept flowing and they paid for over half of the cost of the Gulf war) or that the Twin Towers were brought down by hate-filled Koran-thumping religionist xenophobes--their counterparts.

http://www.youtube.com/watch?v=zSaZ5v1eW5I

Innovation

There is nothing innovative about burning moonshine in an internal combustion engine. As for cellulosic ethanol:

http://i-r-squared.blogspot.com/2010/02/broken-promises-from-range-fuels.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+R-squared+%28R-Squared%29

".. Curious that you dismiss oil subsidies. .."

I didn't dismiss oil subsides.

".. Let's play the "drop the subsidy game." .."

OK. Some subsidies are purely the result of pork politics, benefiting only the constituents of a given state, or company at the expense of the rest of the country or even the planet. They should not exist. Certainly coal and oil don't need subsidies. They are mature and profitable industries.

Some subsidies are legitimate attempts to kick-start industries and come with a drop dead date should that industry fail to reach economic viability in the chosen time frame.

The dollar per gallon blending subsidy that was being given to the biodiesel industry has now expired after having been reinstated over and over again:

http://biodiversivist.blogspot.com/2010/01/never-ending-biodiesel-subsidy.html

If the subsidy never gets dropped all the government is doing is propping up a dead end business model at the expense of its citizenry to line the pockets of a small minority.

The main difference between corn ethanol and soy biodiesel is the power of their lobbies. Corn ethanol has been propped up for over three decades. Rather than welcome a competing product, it will work to crush any serious competitor the first time one arrives on the scene. No major environmental organization in the country supports it. It is obviously not economically viable given that after three decades it still owes its existence into the foreseeable future to subsidies and even mandated use.

The argument that corn ethanol production is inversely proportional to military spending (i.e. the military budget is a subsidy for oil) is quite simply not true. It is literally very successful propaganda generated by the biofuel industry and the politicians whose support they have, ah, garnered:

http://home.comcast.net/~russ676/desiremore/biofuelmyths1.htm#bookmark9

Subsidies for wind and solar also can't go on forever. If our government is not capable of putting a price on GHG emissions, renewable energy like wind and coal have little chance of competing. Corn isn't renewable. 70% of a gallon of corn ethanol results from burning fossil fuels and on a lifecycle basis, it is as bad or worse than gasoline when it comes to GHG. Putting a price on GHG would only hurt corn ethanol.

Russ FinleyFeb 28 2010 01:45 PM

".. You choose the lens of "subsidy per unit of energy" to make the subsidy look silly .."

No I didn't, and that's not a "lens." It's a ratio. I used it to put into perspective how little subsidy oil actually receives per unit energy (or less accurately, per gallon) compared to corn ethanol. I'm all for dropping all oil subsidies, although the impact of doing so would hardly be noticed by consumers with the oil companies making a few cents less profit per gallon.

".. dollars lost overseas every time a U.S. consumer buys a gallon of gasoline, .."

That's called free trade. We are free to pay for grapes in winter, cheap computers made in China.

We could make it illegal to buy oil from the Middle East (or computers from China for that matter). We don't because we would have to pay even more to buy those things elsewhere. Every gallon of gasoline displaced by corn ethanol cost taxpayers an extra 50-60 cents per gallon on top of the gasoline retail price and if that is not true then why support the blending subsidy? Removing it would add eight bucks to the price of an SUV fill up, which might further dampen what little consumer enthusiasm there is for ethanol.

Our own government is literally forcing us to use corn ethanol via mandates after forcing us to subsidize it. It is a remarkable level of peace-time government interference in the market.

".. or that the public has to foot the bill for maintaining overseas security .."

The argument that our gargantuan military budget is a subsidy to oil is absurd. I have not noticed any reduction in military spending as a result of increasing ethanol production. The world is flat. Oil is fungible. Stability in the Middle East is paramount to the economic well being of all trading partners. We can't abandon efforts to maintain that stability regardless of how much we import from that region.

".. Why do we subsidize? Jobs? Carbon? Petroleum reduction? Rural economic development? National security? Innovation? .."

Jobs

You could pay a hundred-thousand people $40,000 a year to dig holes and fill them back in with that $4 billion subsidy.

Carbon

Corn ethanol produces as much or more GHG than gasoline.

Petroleum reduction

By that I assume you mean a reduction in petroleum imports. The price paid by consumers for corn ethanol nullifies any purported benefits from importing less petroleum, assuming you can prove ethanol has reduced the amount imported:

http://i-r-squared.blogspot.com/2009/09/does-ethanol-reduce-petroleum-imports.html

Rural economic development

There is no moral, economic, or legal obligation, or imperative to funnel money to those who choose a rural lifestyle instead of move to urban areas to seek employment as most of us have chosen to do.

http://biodiversivist.blogspot.com/2009/10/myth-of-american-farmer.html

National security

Corn ethanol has done absolutely nothing to improve our national security. Big biofuel has been fanning the flames of xenophobia to hawk their product. The victims of that propaganda think Iraq was connected to 9/11 and don't know that we haven't imported oil from Iran since 1979. They are unaware that Saudi Arabia and Kuwait were our allies in our last two wars (the oil kept flowing and they paid for over half of the cost of the Gulf war) or that the Twin Towers were brought down by hate-filled Koran-thumping religionist xenophobes--their counterparts.

http://www.youtube.com/watch?v=zSaZ5v1eW5I

Innovation

There is nothing innovative about burning moonshine in an internal combustion engine. As for cellulosic ethanol:

http://i-r-squared.blogspot.com/2010/02/broken-promises-from-range-fuels.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+R-squared+%28R-Squared%29

Russ FinleyMar 2 2010 12:54 AM

Ah, pardon the redundant post, and the typo calling coal renewable (I meant solar).

Comments are closed for this post.

About

Switchboard is the staff blog of the Natural Resources Defense Council, the nation’s most effective environmental group. For more about our work, including in-depth policy documents, action alerts and ways you can contribute, visit NRDC.org.

Feeds: Nathanael Greene’s blog

Feeds: Stay Plugged In