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U.S. Ethanol Subsidies Expire, but Fuel Mandate Remains

Jan 04, 2012

On January 1, government subsidies for the U.S. ethanol industry officially expired, ending three decades of federal tax credits and import tariffs that encouraged the diversion of ethanol from food to fuel. The subsidies, which IDFA and others opposed in letters to Congress last year, became a casualty of budget tightening in Washington. But the Congressional mandate requiring  oil refiners to blend gasoline with low levels of ethanol remains in effect.

After several failed attempts at passing repeal legislation this summer, Congress opted to let the tax credits, known as the Volumetric Ethanol Excise Tax Credit (VEETC), expire at the end of 2011. Environmentalists and fiscal conservatives alike joined IDFA and various groups in calling for an end to the subsidies, which cost the government $6 billion last year alone. In addition, a government-imposed tariff on imported ethanol, originally designed to protect the domestic market, was allowed to sunset along with the tax credits.

“Under the policy, nearly 40 percent of U.S. corn production has been used for ethanol, causing higher fuel prices, greater price volatility for farmers and increased costs for government food programs,” said Jerry Slominski, IDFA senior vice president of legislative affairs and economic policy. "With dairy producers continuing to struggle with high feed costs, we commend Congress for letting the tax credits and tariff expire."

Not all federal support for ethanol has ended. The Renewable Fuel Standard (RFS), first adopted as part of the Energy Policy Act of 2005, was expanded in 2007 to require the use of 15 billion gallons of biofuels, such as ethanol, by 2015. More than 11 billion gallons of ethanol were blended into fuel in 2010. The RFS requires the use of 36 billion gallons of biofuel, with 21 billion coming from advanced biofuels, by 2022.

IDFA was an active supporter in the battle to repeal ethanol subsidies due to their negative impact on the food industry and consumers.

For more information, contact Slominski at

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