Much of the attention on corn-based ethanol has focused on the role that this supposedly renewable fuel is playing in driving up global food prices. Now environmental groups and some conservative politicians are pointing out another problem — corn-based ethanol consumes the bulk of federal funding on renewable energy and the big oil companies that blend the ethanol into gasoline are collecting subsidies to the tune of about $6 billion a year.
The Volumetric Ethanol Excise Tax Credit, known as the VEETC, is a 45-cents-per-gallon credit that goes to the refiner that blends the ethanol into fuel.
Because the government already mandates that ethanol be added to gasoline and bans the import of foreign ethanol, critics say the VEETC is unnecessary to maintain supply and is now only a handout to the oil industry.
British Petroleum has not been open about the benefits it receives from the credit but is widely believed to be the largest recipient of the credit.
National Journal reported last year:
On BP’s website, the firm states: “As one of the largest blenders and marketers of biofuels in the nation, we blended over 1 billion gallons of ethanol with gasoline in 2008 alone.” Extrapolating from Energy Information Administration data on 2009 refining capacity, BP is estimated to have produced about 11.5 billion gallons of gasoline. If the company blended up to the 10 percent limit under current law, about 1.15 billion gallons would have been blended, translating to a $518 million tax benefit.
This credit wasn’t among those that the Senate considered scrapping weeks ago, but there does appear to be some political will to cut it.
Though presidential candidates are known to pander to the interest of farmers in Iowa, which holds the first conventions, campaigning in Iowa last month former Minnesota Gov. and Republican presidential candidate Tim Pawlenty said that ethanol credits need to be rolled back.
“We need to do it gradually. We need to do it fairly. But we need to do it,” Pawlenty said. “The hard truth is that there are no longer any sacred programs.”
Candidate Newt Gingrich — who has received hundreds of thousands of dollars as a consultant for the ethanol group Growth Energy — is among the few Republicans campaigning who have not endorsed cuts to the VEETC, according to Sheila Karpf, legislative and policy analyst for the Environmental Working Group, which has been tracking the issue.
Karpf said that the credit was intended to make gas with ethanol more affordable, but oil and gas companies are allowed to collect the subsidy no matter how much profit they make.
Government credits for ethanol blenders are also problematic, she said, because they drain off resources that could support better renewable energy options.
“Corn ethanol actually increases greenhouse gases in the near term,” she said. This is because ethanol is mostly made in facilities that burn coal and natural gas.
Corn ethanol was supposed to be a bridge fuel that would lead to advanced bio-fuels from algae, switch grass, or other sources, she said, but the multiple federal incentives aimed at corn have stifled the development of these potentially superior alternatives.
“The fact that we are still paying VEETC is crazy,” she said, calling the program “a really bad waste of taxpayer money.”
Legislation to end the VEETC has bipartisan support in Congress.
In March, Sens. Tom Coburn, R-Okla., and Ben Cardin, D-Md., introduced a bill to repeal the VEETC.
“While there is a wide range of federal incentives available for ethanol production, the VEETC essentially provides free money for blenders who are already mandated by the Renewable Fuels Standard (RFS) to blend ethanol in fuel,” they said in a statement as they introduced the bill.
“Moreover, while born of good intentions, federal subsidies for ethanol have had less than satisfactory results. Ethanol-blended fuel is nearly a third less efficient than gasoline (ethanol burns at 68 percent the energy content of gasoline), has contributed to the increased price of corn (as well as land, feed, and other input costs), and can cause engine damage in motor vehicles.”
A March Government Accountability Office report (.pdf) recommended that Congress reconsider the VEETC and stated that the U.S. Environmental Protection Agency and the Treasury Dept. could save the federal government $5.7 billion by addressing duplicative efforts aimed at increasing domestic ethanol production.