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Special Interests are Again Pushing for Biofuel Subsidies

Lobbyists have managed to further imbalance the energy playing field and consumers will front the bill

By guest author Paige Lambermont
September 22, 2021

New legislation to benefit biofuel production may soon be forthcoming, according to recent reporting by Reuters.

One proposal would use federal dollars to build new high-blend ethanol fuel pumps while another would provide tax credits for more biofuel-friendly vehicles. These policies would be harmful to consumers and prop up an uneconomic industry.

Farm-belt Senators including Sen. Amy Klobuchar D-MN, Rep. Cheri Bustos R-IL, and Rep. Cindy Axne D-IA are leading the biofuels push, according to Reuters sources. This should come as no surprise, as the biofuel discussion has long been backed by members of Congress from highly agricultural districts.

The two proposals to benefit biofuel producers will be introduced by farm-state representatives in the near future. There is also a possibility that these bills will be rolled into a large spending bill in the fall containing all of the Biden priorities that don’t make it into the final version of the infrastructure bill. 

Under the first proposal, $2 billion would be spent subsidizing the construction of new focused infrastructure, including gas pumps that use higher biofuel blends. The money would be spent through a 5 cent-per-gallon tax credit which would be available to gas stations that offer E15, a 15 percent ethanol fuel blend. The other proposal is a tax credit for manufacturers of “flex-fuel” vehicles, which run on a wider range of gasoline/ethanol mixtures than other vehicles. The credit would be for $200.

Both of these proposals would be an attempt by the government to increase the usage of an unpopular and uneconomical fuel source. Despite decades of government subsidies and requirements, it has failed to gain mainstream momentum on its own. Ethanol and other biofuels consume massive amounts of land, put upward pressure on global food prices, and, depending on the way they are produced, biofuels can create similar or even more emissions than their fossil fuel counterparts. It’s all well and good if consumers would prefer to use ethanol in their vehicles, but as the market has continually shown, this is not the case. 

There could not be a worse time to push for more ethanol usage, as both the U.S. and Brazil—the world’s largest users of ethanol—are scaling back production due to the rising demand and price of the corn and sugarcane necessary to manufacture biofuel. This demand shift towards using the inputs as food shows that they’re more necessary there than as ethanol, and a subsidy only obfuscates that price signal. It would be illogical to subsidize the increased use of ethanol at the expense of a higher-order market preference for the allocation of its inputs.

Additionally, biofuel subsidies have been taken up by both the Senate and the Biden Administration. President Biden’s budget proposal for the fiscal year 2022 includes hefty subsidies for aviation biofuels. The sustainable aviation fuel tax incentives would cost more than $6.6 billion between 2022-2031. The Clean Energy for America Act, which was recently passed out of the Senate Finance Committee and is awaiting consideration by the full Senate, contained an amendment that added biofuels onto the list of energy tax credits that would be extended by the bill. 

In their analysis of both proposals, Taxpayers for Common Sense provided a cost-per-gallon breakdown of what these proposals would mean for taxpayers. 

“Continuing to subsidize biofuels—whether for ethanol blender pumps or aviation fuel—will lead to sky-high taxpayer costs. With a sustainable aviation fuel credit of up to $2 per gallon, as passed out of the Senate Finance Committee, or up to $1.75 per gallon in the President’s budget request, taxpayers would be on the hook for subsidies twice as expensive (per gallon anyway) as of current law.”

In a country with more than $28 trillion in national debt, the subsidization of inferior fuel products serves special interests in the farm belt without providing the substantial environmental benefit is folly. 

Although Ethanol and other biofuels may burn slightly cleaner than other fuels, they have serious problems as well, including land use, fertilizer requirements, and the energy requirements of growing its feedstock. Hopefully, none of these ill-considered biofuel proposals are eventually adopted, either stand-alone legislation or as part of a larger action.

This piece was produced by Paige Lambermont, a Policy Associate at IER