Ethanol boosters could have been accused of swigging some of their product last week when they came out with their proposal to replace their wasteful subsidies with… even more subsidies!!

Corn alcohol as a fuel has been politically popular through the years. Over the past few decades the ethanol industry has swallowed more than $40 billion in federal subsidies . But when the ball drops in Times Square on New Year’s Eve, the 45-cent per gallon tax credit (Volumetric Ethanol Excise Tax Credit – VEETC) will expire. Energy companies and the ethanol industry have been trying to get the credit renewed, but Congress has been choking on the $5 billion annual price tag. Rules governing spending require that the cost be offset by equal cuts or revenue raisers and there just aren’t any for ethanol.

Instead of recognizing that it’s time for ethanol to sink or swim in the marketplace, the Renewable Fuels Association, Growth Energy, American Coalition for Ethanol, and the National Corn Growers Association have come up with a counter offer.

More like counterproductive – from a taxpayer point of view.

The ethanol lobby wants to extend the tax credit at a slightly lower rate for a year.  AND have Uncle Sam pick up the tab for new special “blender” gas pumps that will allow various blends of ethanol, even though the vast majority of cars can’t go beyond the standard 90/10 gas/ethanol blend.  AND help fix that problem with federal support for more Flex Fuel Vehicles that can burn up blends containing up to 85% ethanol. AND to get that ethanol around the country to the new blender pumps – loan guarantees for new ethanol pipelines, since ethanol corrodes and cracks existing pipelines.

They don’t want much do they – just billions more for a mature industry. Adding insult to injury, there already is a mandate that we use 15 billion gallons of the ethanol annually by 2015.

If government wants to support an industry, they can mandate we use its product, can subsidize the creation of the product, or protect the product from foreign competition with a tariff. With ethanol we do all three. Now the companies want to add a fourth—federal infrastructure subsidies!

To make matters worse, the Obama Administration appears to be listening. First, EPA announced support for increasing the percentage of ethanol in gas to 15 percent even though many cars can’t use it. Secondly, the Secretary of Agriculture will hold a briefing on the Administration’s ethanol policies for next week. We hope it’s just an election-day-approaching-pat-on-the-head for the industry, rather than support for an expensive wrong-headed course. But remember, a one-year extension of the tax credit puts the timing of the renewal awfully close to the Corn Caucuses Iowa Caucuses kicking off the 2012 Presidential election. And it goes without saying that ethanol is popular in corn country like Iowa.

Nothing can be done about the tax credit or any of these proposals until Congress returns after the elections for a lame duck session to finish (some of) their work. Traditionally, lame duck sessions are very unproductive. With the case of ethanol subsidies, that would be the best outcome. Congress needs to slap a “Do Not Resuscitate” order on the tax credit and make the ethanol industry walk on its own. Taxpayers have picked up the tab for long enough.

TCS Quote of the Week:

“Members of Congress and their staffs have access to information worth millions of dollars if used for personal gain. The public expects us to adhere to at least as high a standard as we impose on other people, and we don't in this case.”

– Rep. Brian Baird (D., Wash.), on his renewed effort to outlaw insider trading by Capitol Hill members and their staffs. WSJ