Study: End Of Ethanol Subsidy Would Have Marginal Impact On The Markets

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Written By:
Rob Port

Jul 21, 2010
6:07am

Rep. Earl Pomeory has been fighting in Congress to keep ethanol subsidies in place, despite the federal government running huge deficits that are exploding the national debt, but according to a new study from Iowa State University indicates that an end to the ethanol subsidy wouldn’t be nearly the catastrophe people like Pomeroy suggest:

Ending the subsidy for ethanol would have a relatively modest impact on U.S. corn and ethanol markets next year, while saving taxpayers $6 billion, economists at Iowa State University say in a new study.

Ethanol production would likely drop by an estimated 700 million gallons in 2011 from the projected 13.5 billion gallons under existing policy, if the 45-cent-per-gallon subsidy ended. Corn prices would drop 23 cents per bushel and the price of ethanol would be 12 cents a gallon lower, according to the study by ISU’s Center for Agricultural and Rural Development. …

Another issue is the 54-cent-per-gallon tariff on imported ethanol. The ISU study said there would be no impact on U.S. producers next year if the tariff ends, citing “projected strong demand for ethanol in Brazil combined with a largely saturated U.S. ethanol market.”

Ethanol industry flaks are suggesting that an end to the subsidies would result in ethanol plants closing their doors and a decline in the ethanol industry as a whole. In the long term, I don’t doubt that’s true, because the only reason anyone is buying ethanol is because it’s production and sale is subsidized and even mandated in some places by the government.

I don’t see the point in subsidizing a product that people don’t want. Ethanol has been around for a long time. If it were truly a viable fuel, it would be produced and sold at a profit without the need of subsidies. Ethanol isn’t a viable product. It’s a self-licking ice cream cone that lines the pockets of Big Agriculture while giving politicians like Earl Pomeroy yet another venue for vote buying.