Subsidies for uncompetitive U.S. biofuels cost taxpayers billions - report
America needs to rethink the cost of its appetite for home-grown biofuels, according to a European research group. The Global Subsidies Initiative, based in Geneva, Switzerland, totaled up the cost of all the tax breaks, direct subsidies and other benefits for corn-derived ethanol, and it estimates that the assistance will cost U.S. taxpayers at least $5.1 billion this year. The cost for subsidizing biodiesel production adds another $400 million to $500 million, according to a study the group released Wednesday.
The report Biofuels: At What Cost? Government Support to Ethanol and Biodiesel in the United States [*.pdf], indicates that these numbers will go up as production increases. "Subsidies to biofuels are large and growing rapidly," said Doug Koplow, the report's author. The ethanol industry has long been criticized for its reliance on government subsidies, but there have been few attempts to calculate the costs to taxpayers. And the incentives keep growing, on the local, state and national level.
These subsidies are needed because U.S. ethanol (based on corn) and biodiesel (soy) are not competitive, unlike biofuels produced in the South.
'U.S. needs to import biofuels from the South'
Recently, IEA Chief Claude Mandil hit the nail on the head when he called on Europe and the US to import green fuels from the developing world, where they can be made much more competitively because of an abundance of land, water, sunshine and high-yielding crops (earlier post).
What's more, by paying too much for their ethanol, U.S. taxpayers keep millions of potential energy farmers from the South in poverty, by limiting access to their market. It is time for consumers in the North to stop subsidizing an uncompetitive industry, and instead choose for the win-win situation in which they buy fuels from the poor in the South, who in turn benefit from the opportunity to sell on a big market.
Government subsidies to biofuels in the U.S. have lately been promoted as a way to simultaneously address concerns related to the environment, energy security, and rural development. But the cost-effectiveness of achieving these goals under the current subsidy regime is low.
A very inefficient way of tackling climate change
The report finds, for example, that biofuels are an extremely high-cost means for reducing greenhouse-gas emissions. Under optimistic projections, it costs some $500 in federal and state subsidies to reduce one metric ton of CO2-equivalent through the production and use of corn-based ethanol. “That could purchase more than 30 metric tons of CO2-equivalent offsets on the European Climate Exchange, or nearly 140 metric tons on the Chicago Climate Exchange,” notes Doug Koplow:
ethanol :: biodiesel :: bioenergy :: biofuels :: energy :: sustainability :: corn :: subsidies :: U.S. ::
But ethanol supporters said the study overestimates the costs to taxpayers by failing to account for the biofuels' economic benefits. The operation and construction of ethanol plants contributed nearly $2 billion in taxes to the federal treasury last year, said Matt Hartwig of the Renewable Fuels Association.
"The industry is paying dividends," he said.
The study said the actual cost of subsidizing ethanol could be as high as $6.8 billion this year, depending on an unanswered question of whether refiners have to pay taxes on the value of a tax credit they receive for using ethanol.
The subsidies make ethanol far more expensive than other sources of energy, according to the study. The cost of subsidizing ethanol this year is about $15.90 to $17 per million BTUs, a unit of measuring energy content.
Based on a 1989 study, the cost of subsidizing oil and natural gas is under 40 cents per million BTUs when adjusted for inflation. Even accounting for the military expenses from defending oil shipping in the Persian Gulf, oil still costs taxpayers much less than ethanol, according to the latest report.
The biggest subsidy for ethanol is the 51-cent-per-gallon excise tax credit that refiners receive for adding grain alcohol to gasoline.
But the Global Subsidies Initiative study also included in its calculations a portion of the subsidies for growing corn as well as about 200 state and federal incentives that encourage the production and use of ethanol.
Also included in the study: the value of ethanol import tariffs and a 2005 law that bolsters the price of ethanol by requiring refiners to use a certain amount of biofuels each year.
Biodiesel, which can be made from vegetable oils as well as restaurant grease and slaughterhouse waste, is eligible for a tax credit of up to $1 a gallon.
The group argues that there are better, less expensive ways to reduce the use of fossil fuels than subsidizing and requiring the use of biofuels.
The Global Subsidies Initiative is paid for by the governments of the Netherlands, Sweden and New Zealand, which have long-standing concerns about the cost of agricultural subsidies.
Disputes over agricultural tariffs and subsidies recently forced suspension of negotiations aimed at liberalizing trade worldwide.
Hartwig said the study doesn't account for the savings to the government when the demand for ethanol raises corn prices and lowers crop subsidies. The U.S. Agriculture Department has estimated that ethanol production adds about 30 cents to the value of a bushel of corn.
The ethanol subsidy may overstate the value of corn subsidies, the authors acknowledged. The study estimated corn subsidies based on payments made to farmers in recent years.
Leading agricultural economists, however, expect corn subsidies to fall sharply in coming years because of the ethanol-fueled rise in the price of corn. Corn growers would continue to get fixed annual payments each year unless the payments were discontinued by Congress.
More information:
Global Subsidies Initiative: Executive Summary - Biofuels: At What Cost? [*.pdf]
Global Subsidies Initiative: Biofuels: At What Cost? - Government support to ethanol and biodiesel in the United States [*.pdf]
2 Comments:
We allowed about 440 Million Gallons of ethanol duty free (except for the 2% primary tariff.)
How much did Europe let in?
Yeah, that's what I thought.
BTW, Dept of Agriculture Outlays are down about $7 Billion YTD from this same period last year.
THAT wipes out their 6 billion right there.
I didn't see any mention of how much Sweden subsidizes their wood chips to ethanol industry. Whyz'zat?
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