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Since its creation of the domestic market for corn ethanol after the energy crisis of the 1970s, the federal government has nurtured and maintained the ethanol industry with a steady stream of subsidies. Originally sold as a way to achieve energy independence and reduce greenhouse gas emissions, ethanol has been a favorite of many lawmakers:  ethanol producers have received favorable treatment under the tax code, tariff protection from foreign competition, and even a government mandate for its use. As a result, taxpayers have spent billions of dollars over the last 30 years subsidizing the production of corn ethanol, while at the same time creating unintended costs for consumers and the environment.

To start, the farm bill energy title, a massive piece of legislation covering topics ranging from nutrition assistance to broadband internet, provides government subsidies for the now-mature ethanol industry, including corporate giants such as Archer Daniels Midland. The majority of support for corn ethanol in the farm bill comes from the energy title programs such as the Bioenergy Program for Advanced Biofuels. The Rural Energy for America Program  provided subsidies for ethanol blender pumps from 2011 until this was prohibited in the 2014 farm bill, enacted in February.

Subsidies for corn ethanol also litter the tax code – including tax breaks for biodiesel and blender pumps – in addition to Department of Energy programs and other subsidies scattered throughout the federal government such as a mandate for the use of corn ethanol administered by the Environmental Protection Agency (EPA).  This year, new Senate Finance Chairman Ron Wyden (D-OR) proposed a tax extenders package which would extend the Alternative Fuel Vehicle Refueling Property Credit, which provides a 30 percent tax break for gasoline stations or other facilities installing biodiesel or 85 percent ethanol (E85) blender pumps. The credit expired at the end of 2013 but is typically extended in larger tax or other fiscal legislation moving through Congress.

The mature corn ethanol industry should no longer receive taxpayer support, whether through infrastructure subsidies for ethanol blender pumps in the tax code or production subsidies in the farm bill’s energy title. Given the nation’s current fiscal health, these subsidies are more egregious than ever.

Other Federal Supports for Corn Ethanol

In addition to the numerous special-interest supports corn ethanol has received over the years, including tax breaks, an import tariff, and infrastructure subsidies, a federal production mandate called the Renewable Fuel Standard (RFS) also heavily benefits corn ethanol. The maze of historic subsidies for corn ethanol has allowed the federal government to pick winners and losers, distort energy and agriculture markets, and contributed to expansion and overproduction of ethanol in the industry.

Thankfully, the tariff and $6 billion-per-year tax credit were forced into retirement at the end of 2011, but the RFS mandate still requires oil and gas companies to blend increasing amounts of ethanol with gasoline each year, and the EPA recently approved corn biobutanol as a new “advanced biofuel.” Corn ethanol has already exceeded its RFS mandate every year since the mandate originated, but with this new approval, corn-based biofuels could exceed corn ethanol’s 15 billion gallon per year mandate (potentially up to 20 billion gallons), spurring numerous unintended consequences such as higher food prices and increased greenhouse gas emissions; if mixtures of gasoline and ethanol increase from the current 10 percent ethanol (E10 blend), corn-based biofuels would consume nearly the entire RFS mandate, the opposite of Congress’ intent for second-generation biofuels like cellulosic ethanol and advanced biofuels derived from non-food crops to meet a greater share of the U.S. renewable fuel supply.

Corn Ethanol Supports in the Farm Bill

Realizing that the corn ethanol industry had already received its fair share of federal handouts, Agriculture Committee leaders prohibited corn starch ethanol from qualifying for energy title spending authorized in the 2008 farm bill, which was reauthorized in 2014. The intent was to allow the next generation of biofuels (advanced fuels made from non-food sources like agricultural residues, wood waste, and perennial grasses) to receive a greater share of grants, loan guarantees, and other subsidies. But even though corn ethanol facilities are prohibited from receiving energy title funding, at least four of its 15 programs allowed nearly $90 million dollars to be spent on corn-based biofuels from 2009 to 2012, in addition to potential taxpayer liabilities with the federal backing of conditional loan guarantees in the U.S. Department of Agriculture’s (USDA) Biorefinery Assistance Program.

As an example, corn ethanol producers avoided the prohibitions on corn starch ethanol funding by convincing USDA to add ethanol blender pumps to its list of projects eligible for energy funding in the farm bill, even though Congress never authorized this controversial use of taxpayer dollars. Before this ended in Feb. 2014, millions of dollars were squandered on the mature corn ethanol industry. Recipients continue to circumvent energy title program eligibility rules by refining biofuels from corn oil instead of corn starch and producing fuels like butanol and biodiesel instead of ethanol.

Farm bill energy title programs supporting corn-based biofuels, in addition to other forms of renewable energy, are listed in Table 1 below.

Corn Ethanol Supports in the Federal Tax Code

Some subsidies for corn ethanol are still scattered throughout the federal tax code. Three of the most prominent are listed in Table 2 below. Ten-year cost estimates are derived from the Joint Committee on Taxation.

Corn Ethanol Subsidies at the Departments of Energy & Transportation

As stated above, corn ethanol subsidies are also scattered throughout other government agencies, such as the Departments of Energy (DOE) and Transportation (DOT). Some of the most prominent subsidy programs are listed in Table 3 below.

As stated in Table 3, several grants for corn ethanol blender pumps, refineries, and promotional activities were funded through the 2009 Recovery Act (stimulus). These subsidies were awarded through either DOE’s Clean Cities Program or its State Energy Programs.  Table 4 includes a list of individual recipients.

Conclusion

It’s time the mature corn ethanol industry survived on its own two feet without taxpayer support. After more than 30 years of federal backing, corn ethanol subsidies scattered throughout the federal tax code and farm bill energy title should be eliminated once and for all. Economic, environmental, and public health costs would also decline if unintended consequences of ethanol production were ended, benefiting drivers, consumers, and the general public.

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