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Obama Administration Should Cut Ethanol Subsidies

Obama Administration Should Cut Ethanol Subsidies

Barack Obama will be sworn in as our nation's 44th president this week, and by any account, he's got his work cut out for him with regard to the flagging U.S. economy. Obama has frequently said that government investment in “green collar jobs” — jobs that focus on engineering more fuel-efficient cars or developing alternative energy sources, for example — may be one of the best ways for the government to help with multiple problems. These industries could help reinvigorate the economy, reduce greenhouse gas emissions and reduce American dependence on foreign sources of energy, advocates argue.

It is hoped, while formulating these plans, the Obama administration will take a harder look at the disproportionate funding that ethanol is receiving under our current renewable energy policies.

Citing data from the federal Energy Information Administration, the Environmental Working Group released a report this month noting that “corn-based ethanol has accounted for fully three-quarters of the tax benefits and two-thirds of all federal subsidies allotted for renewable energy sources in 2007.”

Corn-based ethanol producers received $3 billion in tax credits that year, more than four times the $690 million received by companies working to expand all other forms of renewable energy, including solar, wind and geothermal power, according to the report.

Environmental activism groups have long been critical of corn-based ethanol, arguing that after accounting for all of the energy used to fertilize, harvest, transport and convert corn into fuel, net energy gains are minimal at best.

And, during the past two years, food industry groups have joined the growing chorus of critics. Poultry, meat, dairy and egg producers have struggled with soaring feed prices, which ultimately translated into higher prices for consumers. Similarly, every grocery supplier that uses corn-based sweeteners took a hit as the price of corn hit record highs last summer. Ironically, these higher corn prices — caused in large part by demand from the ethanol industry — contributed to the recent bankruptcies of several ethanol producers as well. And now that the price of corn has taken its inevitable dive, growers say they are struggling. This is a farce.

Certainly, ethanol has a role to play in any comprehensive green energy plan, particularly as a fuel solution for the U.S. Midwest. Also, promising strides are being made in the field of cellulosic ethanol — in the future, we may be able to make fuel from corn cobs, rather than corn.

But during the past two years, it has become abundantly evident that current U.S. energy policies and their outsized ethanol production targets have done nothing to wean the U.S. off of foreign fuel, and nothing to reduce greenhouse gas emissions. They've done little other than distort demand for corn, and link the price of corn and crude oil in the commodities markets — with disastrous consequences.