Editorial: Ethanol mandate still props up the industry

Editorial: Ethanol mandate still props up the industry

Some good news came at year’s end as Capitol Hill allowed two key ethanol subsidies to expire. That decision could have eased corn and soybean prices were it not for the 15.2-billion-gallon Renewable Fuel Standard still on the books. That mandate is the largest pig at the trough, consuming about 40 percent of the nation’s corn crop. And that law continues to cause a negative impact for those of us who feed cattle.

Despite the mixed victory, the expired tax credits and tariffs are a welcomed start. Not too long ago, ethanol’s triple crown of federal support in the form of credits, tariffs, and mandates seemed nearly untouchable. Refiners received a 45-cent-per-gallon tax credit for blending ethanol, while a 54-cent-per-gallon tariff stifled imports. Last year, the 45-cent subsidy led to a $6 billion annual incentive to blend ethanol into gasoline.

It took an unlikely coalition to allow two legs of ethanol’s support stool to expire after over 30 years of government support. Mounting federal deficits caused a left-right coalition of fiscal conservatives and liberal environmentalists to join forces and cool any idea of renewing ethanol’s long-enjoyed double subsidy.

While many are pleased with the partial relief, corn ethanol isn’t going away any time soon. It is an established business and accounts for 10 percent of the nation’s gasoline supply. What’s more, the ethanol industry still has plenty of influence despite its recent setback. If the industry or crop prices flounder, there could be repeated calls for federal assistance.

Also worrisome is the government’s insistence on funding additional research despite repeated failures. To date, cellulosic ethanol research has received an estimated $1.5 billion in federal subsidies. And after all those tax dollars, not one drop of cellulosic fuel has been produced commercially. We’re afraid that future government action could bolster support for cellulosic and grain-based ethanol into one legislative push.

Unfortunately, dairy farmers have had to pay the price for ethanol three times: higher prices at the pump, through tax dollars, and, most painful, through higher feed bills. We certainly welcome ending some of ethanol’s protections. However, the mandate still in place leads to a guaranteed market. Until that mandate is off the books, all those who buy grain will continue to have to deal with the big pig at the feed trough.

This Editorial appears on page 84 of the February 10, 2012 issue of Hoard's Dairyman