By Ryan Alexander
October 31, 2019 at 5:00 am ET
Earlier this month, the Trump administration announced a long-awaited biofuels “deal” aimed at placating angry corn ethanol farmers and their representatives in Washington.
The ethanol industry was upset about the administration kowtowing to the oil industry by increasing small refiner waivers that reduce the amount of ethanol and biodiesel oil companies must blend into fuel. However, President Donald Trump’s announcement is a nightmare for taxpayers, consumers and farmers alike. Tricking farmers into accepting a few million-gallons increase in the deeply broken federal biofuels mandate — mixed with promises of other costly treats — will only prolong long-overdue decisions about the Renewable Fuel Standard’s (and farmers’) long-term future.
The ethanol industry has already benefited from a four-decade-old tangled web of government handouts. Subsidies began in 1978, and mandates for biofuels use through the RFS were enacted in 2005.
The federal RFS was greatly expanded in 2007 to require 36 billion gallons of biofuels to be consumed by 2022. When lawmakers allowed a nearly $6 billion-per-year ethanol tax credit to expire at the end of 2011, the ethanol lobby switched gears and convinced the U.S. Department of Agriculture to subsidize other special interest sweets: pumps for blending higher levels of ethanol into gasoline at gas stations.
In turn, lawmakers squashed this pumpkin in the 2014 farm bill. USDA waved its wand and found another USDA account — the Commodity Credit Corp. — to again subsidize ethanol blender pumps in 2015 (yes, the same account currently being used to cut checks to agricultural producers due to Trump’s trade war). Taxpayers for Common Sense awarded then-USDA Secretary Tom Vilsack the Golden Fleece award for perpetuating these wasteful whack-a-mole subsidies.
Around this time, ethanol production was nearing its 15 billion-gallon mandate in the RFS. Corn prices and farm income hit record levels. Farmers bought tractors and equipment with their newfound wealth. But long-term prosperity can’t be concocted from government interventions and market distortions.
Now, after corn and soybean acreage reached recent record highs, partially to fulfill government biofuels mandates, crop prices have fallen as supply increased. As a result, Trump granted the corn ethanol lobby another goodie this year — expansion of year-round 15 percent ethanol sales (an increase from the typical E10 blend). But the administration, wanting the best of both worlds, also bowed to the oil industry by granting numerous small refiner waivers from RFS blending requirements.
The University of Illinois estimates that ethanol demand has not actually dropped as a result of these waivers, a sentiment shared by Environmental Protection Agency Administrator Andrew Wheeler. Regardless, farmers were spooked and began to turn on Trump, or at least on some in his administration.
Adding another layer of sweets to the RFS won’t change the fact that the failed mandate is doing more harm than good. Even an editorial in the The Gazette of Cedar Rapids, Iowa, admitted the RFS is unlikely to meet one of its primary goals: lower greenhouse gas emissions.
Independent research shows corn ethanol is a bridge to nowhere. While food-based biofuels were once promised to be temporary tools to spur development of the next generation of biofuels from switchgrass, corn cobs and wood chips, these “cellulosic” biofuels are nowhere to be found. Thus, the RFS has primarily been a mandate for corn ethanol, contributing to higher food, feed and fuel prices and the conversion of prairie and other natural habitats to corn fields.
The Trump administration recently announced that it would propose adding back some of the “lost” gallons from small refiner waivers, in addition to potential promises for more blender pump subsidies, changes to E15 labeling, etc. But the deal isn’t the fairy tale the ethanol industry had hoped for. Corn markets haven’t responded favorably, and farmers still aren’t pleased.
Like a kid with a candy jar, enough is never enough. Farm-state governors continue to put their hands out for more giveaways — up to E30 blends, for instance.
Instead of trading treats between corn and oil, the administration and Congress should take a step back, address the broken RFS and reject calls to spend more taxpayer dollars on ethanol and trade war bailouts. Only markets, not governmental magic wands, can whip up a solution for taxpayers’ and farmers’ long-term prosperity.
Ryan Alexander is president of Taxpayers for Common Sense.
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