Interesting article from the The Economist about the recent cut in ethanol subsidies. What do you think about ending these subsidies. Comment below to voice your opinion.
TWO of the iron rules of American politics are that Republicans don’t vote for higher taxes and only the foolhardy vote against Iowa. Both were broken on June 16th when senators from both parties voted by sizable margins to repeal a tax credit and tariff on ethanol.
Since 2004 blenders have received a credit, now worth 45 cents, for each gallon of ethanol they mix with regular gasoline (petrol). Most of the benefit flows down to farmers. And since 1980 domestic producers have also been protected by a 54 cent tariff on imports, which serves to keep out ethanol made more cheaply from Brazilian sugar cane.
Defenders say the credit and tariff reduce American dependence on imported fossil fuels and reduce carbon dioxide emissions. But it is an inefficient way to do both. Because ethanol produces less energy than petrol and requires the burning of fossil fuels in its production, and because ethanol would still be used without a credit, the taxpayer pays about $1.78 to reduce petrol consumption by one gallon via corn-based ethanol. Taking everything into account, ethanol releases almost as much carbon dioxide as petrol does. As Michael Greenstone, the director of the Hamilton Project, a liberal research group, puts it, “Ethanol is largely farm support policy, not environmental policy.”
It would appear that the farm belt lobby has lost some weight in Congress. But maybe the reality of the situation has finally set in and fiscal and environmental sense has come back.