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Huge Taxpayer Investment in Ethanol Yields Paltry Payoff

Monday, June 14, 2010

Between 2005 and 2009, U.S. taxpayers spent a whopping $17 billion to subsidize corn ethanol blends in gasoline. What did they get in return? A reduction in overall oil consumption equal to an unimpressive 1.1 mile-per-gallon increase in fleet-wide fuel economy. Worse, ethanol’s much ballyhooed contribution to reducing America’s dependence on imported oil looks even smaller – the equivalent to a measly six tenths of a mile per gallon fleet-wide.

That’s the conclusion of Driving Under the Influence: Corn-Ethanol and Energy Security, a new report from the Environmental Working Group (EWG) that exposes the truth about the wildly exaggerated claims being made about ethanol’s contribution to America’s security and energy independence.

Sadly, the degree of energy independence derived from the American taxpayer’s massive investment in corn ethanol could have been accomplished for free by proper tire inflation and using the right grade of motor oil, driving sensibly, or better enforcement of speed limits.

The US Environmental Protection Agency is mulling over whether to allow a 50 percent increase in the amount of ethanol blended into gasoline, and Congress is being lobbied to extend the Volumetric Ethanol Excise Tax Credit (VEETC), currently set to expire on Dec. 31, 2010. It is often called the “blenders’ tax credit” because it goes to the companies that blend ethanol with gasoline.

British Petroleum (BP) and other major oil companies appear to be the main beneficiaries of these taxpayer-funded ethanol incentives. EWG has asked the Internal Revenue Service to disclose who has been getting those incentives, but the IRS has refused.

As a result of the tax credit, it cost taxpayers $4.8 billion in 2009 to replace 7.2 billion gallons of gasoline with 10.6 billion gallons of ethanol. Between 2005 and 2009, taxpayers spent more than $17 billion on tax credits for ethanol production and use. Without a change in federal law, the US government will be on the hook for another $5.4 billion this year. If the ethanol industry succeeds in getting Congress to extend the credit, taxpayers will be out another $31 billion between 2011 and 2015, for a cumulative total of nearly $54 billion by 2015.

Go here for the full report authored by Craig Cox and Andrew Hug: Driving Under the Influence.