In response to USDA’s pro-ethanol mission creep, Congress included Section 9001(16)(B) in the Agricultural Act of 2014 (Farm Bill)[16]:

(B) LIMITATION.—A [renewable energy system] may not include a mechanism for dispensing energy at retail.

The meaning of the provision was unambiguous: blender pumps cannot be considered a renewable energy system project. In case there was any doubt, language in the conference report accompanying and explaining the law affirmed that by extending the definition of renewable energy system to include the pumps, USDA had overstepped the bounds of Congressional intent. The members of the conference committee, as the “managers” incorporating both the House and Senate versions of the Farm Bill, wrote in reference to REAP:

The Managers clarify that the intent of the program has been to promote energy efficiency and the production of renewable energy, rather than energy delivery. Therefore, renewable fuel blender pumps or other mechanisms to dispense fuel are not a use of the program consistent with this purpose. [17] [emphasis added]

The Farm Bill, with the Sec. 9001 provision passed the House by a vote of 251-166[18] and the Senate by 68-32.[19] When President Obama signed it three days later, the matter should have been settled, and taxpayers should have been freed from funding another wasteful giveaway to the ethanol industry.

An End-Run around REAP Rules

Within weeks of the 2014 Farm Bill’s passage, Sec. Vilsack traveled the country announcing his continued commitment to helping the ethanol industry. Speaking at the annual conference of Growth Energy, a trade organization representing ethanol producers, the Secretary declared, “I am a firm believer in this industry. I think it is essential and I think it is absolutely mandatory that this industry continue to survive, to mature and to expand.” He invited requests from ethanol companies for more subsidies, saying, “This is an invitation to you to come to me, and I will help you and USDA will help you, make no mistake about that.”[20] Sec. Vilsack even hinted at how he would try to get around the recent Farm Bill provision.[21] The industry applauded.

In March 2014, Sec. Vilsack went before the National Farmers Union, another pro-ethanol group, and according to media reports, “pledged to use other USDA rural development programs such as the business and industry loan program to install [blender pumps].” Sec. Vilsack then described how he planned to change the rules of such programs to allow blender pump installation projects to get funding.[22]

In May 2015, the USDA announced it was making $100 million in grants available for ethanol blender pumps[23] through the USDA’s Commodity Credit Corporation,[24] the same source of financing for the REAP grants. The new “Biofuels Infrastructure Project,” which just finished accepting applications for grants,[25] will match USDA funding with state funding, but otherwise resembles REAP. The program has never received legislative authorization, and simply continues an activity that was expressly prohibited by Congress by slapping a different moniker on it. The unilateral decision by USDA to offer millions in support of a mature industry that already receives federal subsidies and enjoys a federal mandate for use of its product raises serious concerns, and represents an egregious waste of taxpayer dollars.

Background on Ethanol Subsidies

The USDA’s recent funding for blender pumps is just the latest means of promoting the technology and subsidizing the corn ethanol industry that has received federal government support for more than 30 years.[26] Through such provisions as the Alternative Fuel Vehicle Refueling Property Credit, Volumetric Biodiesel Excise Tax Credit/Renewable Biodiesel Tax Credit, and the eligibility rules for Master Limited Partnerships, ethanol is subsidized at great cost through the tax code. It’s also been supported by the Department of Energy’s Clean Cities Program and the Department of Transportation’s Congestion Mitigation and Air Quality Improvement Program, which received $6.8 billion for 2013-2015.[27] In addition to such programs and incentives, the federal government notably guarantees ethanol a market through the Renewable Fuel Standard (RFS), which mandates that oil and gas companies blend increasing amounts of biofuels (of which, more than 80 percent is corn-based ethanol) with gasoline each year through 2022.[28]

As if supporting corn ethanol at every step of the production process wasn’t enough, taxpayers have also been forced to subsidize ethanol blender pumps, a key giveaway to the industry.

Instead of letting the mature, already heavily-subsidized corn ethanol industry cover the costs of blender pump infrastructure, USDA and the ethanol industry have shifted billions of dollars in financial support for blender pumps onto taxpayers in the following ways:

The Tax Code – Ethanol blender pumps have received tax breaks through the Alternative Fuel Vehicle Refueling Property Credit, which applies to gas stations that install biodiesel or 85 percent ethanol (E85) blender pumps, leading to a 10 year cost estimate for taxpayers of $380 million from FY15-24.[29]

Department of Energy (DOE) Programs – Through DOE’s Clean Cities Program, which promotes consumption of alternative fuels and the installation of new fueling equipment, including 85 percent ethanol (E85) blender pumps, nearly $300 million was spent on 2009 Recovery Act (stimulus) grants for fueling infrastructure such as blender pumps.[30] Through DOE State Energy Programs (SEP), grants have been awarded for the installation of E85 blender pumps, alternative power sources for ethanol biorefineries, and ethanol promotional events, costing taxpayers $3.1 billion under the 2009 Recovery (stimulus) legislation.[31]

The tremendous support for blender pumps through these programs was apparently not enough. In 2011, the USDA co-opted the Rural Energy for America Program (REAP) to further subsidize the technology.

Conclusion

USDA’s utilizing Commodity Credit Corporation funds to support the installation of ethanol blender pumps at gas stations runs contrary to Congress’s intent and further uses taxpayer dollars to cover costs that should be shouldered by the mature corn ethanol industry.

For more information, contact Steve Ellis, at 202-546-8500

About the Golden Fleece

The Golden Fleece award was created in 1975 by the late Senator William Proxmire. It is intended to highlight instances of wasteful spending. After retirement, Sen. Proxmire served as Honorary Chairman of Taxpayers for Common Sense’s Advisory Board and passed the mantle of the Golden Fleece to the organization in 2000.

For more information, contact Taxpayers for Common Sense at 202-546-8500

References