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Sasha Lyutse’s Blog

Vilsack points to report that shows ending corn ethanol tax credit will raise GDP

Sasha Lyutse

Posted October 22, 2010 in Moving Beyond Oil, Solving Global Warming

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Despite disappointing statements indicating the administration’s support for a short-term extension of wasteful corn ethanol subsidies, Secretary of Agriculture Tom Vilsack’s speech yesterday at the National Press Club included some not-to-be-overlooked comments on the economic impacts of  the Volumetric Ethanol Excise Tax Credit or “VEETC” that indicate the administration understands the time has come for real reform of our biofuels incentives.

In his remarks, Vilsack cited a hot-off-the-presses study by the USDA’s Economic Research Service (ERS) entitled Effects of Increased Biofuels in the U.S. Economy in 2022, which examines the potential impacts of the Renewable Fuels Standard (RFS-2), with and without accompanying ethanol tax credits, on the U.S. economy, as measured by gross domestic product (GDP). Established by the Energy Independence and Security Act of 2007 (EISA), the RFS2 aims to reduce oil imports, encourage the development and expansion of our nation's renewable fuels sector, and achieve significant reductions of greenhouse gas emissions from the use of renewable fuels by ramping up biofuels production to 36 billion gallons by 2022, 21 billion gallons of which are advanced biofuels. The study compares the U.S. economy in 2022 with and without the RFS-2.

ERS puts the key finding right up front in Figure 1 of the report:

figure1.bmp

 

The message could not be clearer: with the RFS in place, eliminating ethanol tax credits will grow U.S. GDP by nearly $6 billion under the high oil price scenario and by almost $4 billion under the low oil price scenario.  Retaining the tax credits, on the other hand, decreases GDP by roughly $4-6 billion, depending on oil prices, because of foregone revenues.

NRDC has long called for an end to the redundant and wasteful corn ethanol tax credit, which has cost taxpayers $20 billion over the last four years, results in little to no additional domestic ethanol production beyond what is mandated by the RFS, and moves us backwards, not forwards, in terms of reducing GHG emissions. Just a one-year extension of the VEETC would cost taxpayers nearly $6 billion. This is money wasted, and, more importantly, money that could be spent in support of the newer, cleaner, advanced biofuels we need if we are to meet the goals of the RFS and grow our economy. 

Vilsack’s own reference to the ERS study and to “fiscally responsible” reforms to ethanol tax credits indicates that the administration understands this: 

At the same time, we need to begin to think about reforms to the ethanol credit program to make it more efficient and effective at addressing the full range of challenges we face in meeting our goals for traditional and next generation biofuels.

A “more efficient and effective” tax credit program will require a shift in thinking away from simply incentivizing more biofuels to incentivizing better biofuels. A well-designed, performance-based tax credit—such as the Greener Biofuels Tax Credit approach we’ve proposed—would reward biofuels for real, delivered environmental performance and encourage continuous technological improvement and innovation. Funds freed up from ending VEETC subsidies should be used to launch a Billion Gallon Challenge, a focused effort to jumpstart the best biofuels by providing targeted incentives for getting the first 1 billion gallons of truly low-carbon biofuels—produced using feedstocks and conversion technologies that are sustainable and scalable—to market by 2014.  

Now it’s time for the Obama administration to show it is serious about reducing our dependence on foreign oil, growing our economy, and meeting our climate challenges by heeding the conclusions of the ERS study, allowing the VEETC to expire at year-end, and focusing on genuine reform.  

 

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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.

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