The real cost of the corn ethanol tax credit (VEETC)
Posted July 20, 2010 in Solving Global Warming
Last night, the House Ways and Means Committee put the brakes on discussions to extend the Volumetric Ethanol Excise Tax Credit (VEETC), a government kickback for Big Oil to buy and blend corn ethanol that they are already required to purchase under the Renewable Fuel Standard. Why? Support for this unnecessary boondoggle is shifting, which isn't surprising at a time when schoolteachers are facing layoffs, and millions of unemployed Americans are seeing their jobless benefits slashed.
As Sasha wrote last week, a Congressional Budget Office study found that VEETC is costing taxpayers $1.78 at the pump to replace each gallon of gasoline with corn ethanol. Today she covers a new report from Bruce Babcock at Iowa State University that puts the cost of additional domestic ethanol above the RFS levels at $7 per gallon and refutes the ethanol industry’s claims that ending VEETC will cost jobs. All this for mature corn ethanol--a technology that’s more polluting than gasoline.
Meanwhile, thousands of teachers are facing layoffs in school districts around the nation, and the feds say they can’t come up with the funds to extend jobless benefits for 2.5 million unemployed Americans. Putting an end to VEETC would help free up some of those desperately needed funds. Here’s the numbers:
If VEETC is extended at the current rate of $0.45/gallon, it will cost taxpayers $5.4 5.67 billion for just one year. Even the 1 year extension at the lower rate of $0.36/gallon which the House Ways and Means Committee was discussing last week, that’s still $4.45 4.54 billion wasted on a practice that’s already required by law. $4.45 4.54 billion is enough to:
- Keep
62,30063,500 teachers in schoolrooms when school starts this fall (using the federal calculation average of $71,429 per teacher) - Provide $400/week in unemployment benefits to
nearly 430,000472,500 out of work Americans for six months - Save
65,33366,595 firefighter jobs (at a rate of $68,113 per firefighter) by supporting Federal Emergency Management Agency grants to cash-strapped cities
The corn ethanol industry claims VEETC will cost 112,000 jobs, but the Iowa State University puts this number at just 407 jobs and says that protecting these jobs with the VEETC would cost about $15 million per job per year. The schoolteachers, firefighters and jobless Americans who could use these funds right now are more real than the ridiculously inflated numbers that the industry keeps spitting out.
Clearly, the debate around the VEETC has shifted. The evidence is building, from the CBO report, Growth Energy’s proposal to phase out the VEETC, an early proposal by some on Ways and Means to limit a VEETC extension to one year and reduce it to $0.36/gallon, and today’s Iowa State University report. It’s no longer about what level to set the VEETC at, but rather when it should expire. Congress should stop handing out billions to two mature, mainstream, and polluting industries: big oil and old corn ethanol. The time to let VEETC expire is now.
SIDEBAR
Renewing VEETC will cost taxpayers:
$5.4 5.67 billion in 2011, if renewed at $0.45/gallon
$4.45 4.54 billion in 2011, if renewed at $0.36/gallon
$3.78 billion in 2011, if renewed at $0.30/gallon
$3.15 billion in 2011, if renewed at $0.25/gallon
Note that the Joint Tax Committee (JTC) nets out the ethanol import tariff, but even JTC’s estimate of a one-year extension at $0.36/gallon could mean keeping 52,920 teachers.
P.S. A little sloppy math lead to slighlty lower costs for the VEETC in the original version of this post. Actually extending the VEETC would cost more as can be seen with the corrections above.
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Comments
John James — Jul 21 2010 09:54 AM
More biased information from NRDC.
Why didn't you include in your article that the Iowa State study was funded by UNICA, aka BRAZILIAN Sugarne Ethanol. What did you expect them to produce? That's like Pepsi funding a study on Coke. You can't trust those results.
Question, why does NRDC spend so much time bashing ethanol tax incentives when BIG oil receives four to five times more than ethanol? Why does oil need to be subsidized?
John James — Jul 21 2010 10:02 AM
The Iowa State study was funded by UNICA, Brazilian Sugar Cane Ethanol Producers. That's like Pepsi funding a study on Coke, how could you or anyone take this serioulsly? What would you excpect their results to show?
Joel Velasco — Jul 21 2010 10:56 AM
John James:
I hope you'll read the report first before simply dismissing the findings. It's 40 pages, but there's a pretty good summary here http://sweeteralternative.com/blog/reality-check.
UNICA helped fund the study but we did not have any influence over its results. This is evident in Dr. Babcock’s findings, which show that allowing the blender credit and tariff to expire would not create the export bonanza Brazil would hope for.
The results are still significant because they show that letting the VEETC and tariff expire would not have the dramatic, adverse effect U.S. ethanol producers have subjected all of us to for decades.
Our aim was to provide a realistic analysis of the various scenarios Congress is actually debating - regardless of whether they benefit us. This has not been the case with countless studies paid for and cited by the corn ethanol industry.
Joel Velasco
UNICA
John James — Jul 21 2010 11:33 AM
Joel,
So you bash an American Industry owned by American Farmers, but still expect them to buy into your study? Let's see, by losing VEETC, American Farmers will suffer from lower corn prices and less ethanol production which in turn increases our dependence on foreign oil.
Russ Finley — Jul 21 2010 11:57 AM
John,
The NRDC does not promote oil subsidies. You have to look at the subsidy per gallon:
http://home.comcast.net/~russ676/desiremore/biofuelmyths1.htm#bookmark14
Removing the oil subsidies would be a wise thing but oil would not go away, it would just cost a little more at the pump, which would help reduce its consumption.
The ethanol subsidy also reduces pump prices, which also increases gasoline consumption.
B Babcock — Jul 21 2010 09:50 PM
The appearance of a conflict of interest because of who funded the study is real. The reality of the conflict of interest bends the other way because an Economics graduate student will be funded by the UNICA funds, not me, and my wife an I own 25 shares in a corn ethanol plant and we grow corn and soybeans on our farmland. So if anything, I should be fighting hard for the tax credit and the import tariff because that will had a bit to my corn and soybeans prices and my return on investment from ethanol.
With state funding of research falling off the cliff, and Federal funds becoming tighter, public Universities need to find funds for graduate students wherever they can. Thank you UNICA for making it possible for a grad student to further their education in Economics.