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Subsidizing Conventional Biofuels: An Idea Whose Time is Over

June 20, 2011 Work Area: Land Systems

Finally, policies that prop up biofuels production are in the crosshairs, and not a moment too soon. Because over the last decade, the biofuels industry has grown accustomed to getting whatever it wants, with no questions asked. Those days, at long last, appear to be over.

Last week, the U.S. House of Representatives voted 283-128 to prohibit the federal government from using taxpayer dollars to pay for the new ethanol pumps, storage tanks, and other infrastructure the industry needs (but would prefer not to pay for). Hours later the Senate voted by nearly a three-to-one margin to pull the plug on a tax credit that benefits ethanol makers. The legislative developments came on the heels of a report by international agencies including the United Nations, the World Bank, and the World Trade Organization urging G20 member countries to repeal national-level measures “that subsidize (or mandate) biofuels production or consumption.” In Europe, meanwhile, the European Commission finally acknowledged that research it requested (but then attempted to hide) indicates that an expansion of EU biofuels policy will exacerbate deforestation and other climate-harmful land use practices.

So, given all of the reasons biofuels policies are now under attack, what took policymakers so long to act? Last week’s Senate vote to terminate the Volumetric Ethanol Excise Tax Credit – or VEETC – was largely motivated by concerns over the subsidy’s exorbitant cost ($6 billion in 2011; $21.5 billion over the past five years). VEETC pays refiners 45 cents for every gallon of ethanol they blend into gasoline, even though another federal law – the Renewable Fuels Standard – already requires Americans to consume that ethanol. “We are staring down the barrel of a $1.65 trillion deficit – we cannot afford to continue to line the pockets of this profitable industry with tax breaks or any other form of subsidy,” said Taxpayers for Common Sense, which along with the Clean Air Task Force is part of a coalition of taxpayer advocates, hunger and development organizations, agricultural groups, free-market groups, religious organizations, environmental groups, budget hawks, and public interest organizations calling on Congress to kill VEETC.

The sharp increase in food prices is the driving force behind the forthcoming report by the UN and others calling on G20 countries to eliminate their biofuel subsidies. According to the Financial Times, “The report confirms a growing backlash against biofuels, which were once hailed as a saviour for fossil fuel-dependent economies but are now increasingly blamed for pushing up food prices by diverting corn and other crops from the dinner table to fuel tanks.” In April, an analyst for the Food and Agricultural Organization told The New York Times, “We have to move away from the thinking that producing an energy crop doesn’t compete with food. It almost inevitably does.”

Finally, bioenergy policies’ impact on land use patterns, and how those changes accelerate global warming, is at the heart of the controversy over the recent report to the European Commission. As supply margins for corn, soy, and other biofuel feedstocks tighten, they fetch higher prices. The increase in food prices encourages farmers around the world to cultivate previously unfarmed land – a process that results in substantial losses of soil- and plant-carbon to the atmosphere. A biofuel must “pay back” this “carbon debt” (by sequestering carbon dioxide through the growth of energy crops in subsequent years) before it can be credited with any net climate benefits as compared to petroleum-based fuels. Researchers have found that the payback periods can range from several years to several hundred years, depending on the biofuels feedstock. The European Commission acknowledged this effect, but is struggling to make the necessary course correction.

In the United States, canceling VEETC would be a big step in the right direction. As soon as possible, the House of Representatives should follow the Senate’s lead and vote to end the subsidy. Once that is accomplished, though, policymakers should turn their attention to the bigger problem: the Renewable Fuel Standard. The Renewable Fuel Standard is forcing a massive increase in U.S. biofuels consumption, from just under 5 billion gallons a year in 2006 to 36 billion gallons in 2022. Forty percent of the U.S. corn crop is now diverted to ethanol production, with undeniably grave implications for food prices and climate change. Analysis by the Clean Air Task Force found that the net carbon dioxide emissions from the corn ethanol mandated by the Renewable Fuels Standard in 2010 are 28 percent higher than the emissions from an energy equivalent amount of gasoline.

Biofuels are a creature of policy. Absent the support lavished on them over decades by hoodwinked taxpayers, they would not exist. Even with public support, they offer few discernible benefits while undermining food security and accelerating climate change. It’s time to pull the plug on VEETC and other policies that support conventional biofuels.

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