Congress Ends Taxpayer Funding of Ethanol Subsidies

When the U.S. Congress adjourned for the holidays on Friday, December 23, its departure sealed the fate of subsidized ethanol production.

During its session, the Congress did not renew a tax break for U.S. production of corn-based ethanol that had become increasingly unpopular across a wide area of the political spectrum.

The tax credit amounted to 45 cents per gallon of ethanol that was blended into gasoline. It had been in place since 1980.

Corn lobby loses support

As The Detroit News reported the next day, by some estimates, total subsidies to the ethanol industry may have reached $45 billion over that period. That is several times the total loans, grants, and tax credits provided thus far to the U.S. electric-car industry.

Gas pump

In June, the Senate voted 73-27 to end the tax break. That vote, attached to an economic development bill that was stalled, was viewed as symbolic--letting Congressmembers go on record against continuing the subsidies without effectively ending them.

It proved to be a test case that demonstrated the waning support in Congress for the corn-based ethanol industry. Three weeks later, an agreement was reached to end the subsidies for real--and it held for the rest of the year.

Ending the ethanol tax breaks is projected to save about $2 billion over several years. Of that total, two-thirds is to be applied to cutting the national debt, although it represents just one-tenth of 1 percent of the total national debt of $14.3 trillion.

Half as productive as Brazil

Using corn is the least productive way to make ethanol, at roughly 300 gallons per acre of feedstock. The Brazilian ethanol industry gets twice as many gallons per acre using sugar cane, and other feedstocks like switchgrass have been projected to produce up to 1,200 gallons per acre.

Development of cellulosic ethanol refineries that use non-corn feedstocks have lagged commercially, despite several pilot projects.

U.S. corn ethanol had further been protected by a 54-cents-per-gallon tariff on imports of ethanol from other countries (meaning Brazil). That import duty was also ended by the departure of Congress for the year.

But with sugar prices high in Brazil, imports of ethanol aren't likely to spike in the short term.

Conflict with 2007 mandate

That leads to a longer-range question: Will there be sufficient ethanol produced and imported to meet the escalating ethanol-use requirements of the 2007 Energy Independence and Security Act passed by Congress?

Proposed EPA E15 gasoline pump warning label for ethanol content

That law requires that 36 billion gallons of ethanol be blended into U.S. vehicle fuel by 2022--which is more than three times the 11.1 billion gallons used in 2010. The requirement rises to 15 billion gallons for 2015.

Congress has blocked the EPA's approval of E15 gasoline, which has up to 15 percent ethanol, largely at the request of automakers and others who fear damage to engines not designed to handle fuel with that volume of ethanol. The current standard, in places for decades, permits up to 10 percent ethanol in pump gasoline.

So while Congress has ended tax breaks, it may have set up the fuel industry for failure on the 2007 mandate by explicitly banning E15 gasoline.

Until that is resolved, the politics of ethanol are likely to remain fractious.

Source: Green Car Reports

E85 Becoming Harder to Locate Than Electric Charge Stations

Despite millions of dollars of commitment from automakers like Ford and General Motors, finding somewhere to fill your flex-fuel car with E85 is now officially harder than finding somewhere to recharge a plug-in car.

In fact, according to Bloomberg, the number of electric car charging stations in the U.S. outnumbers E85 filling stations by two to one, despite a total of 7.6 million flex-fuel vehicles on U.S. roads today.

But if so many automakers have now embraced flex-fuel technology, why are there fewer than 2,500 gas stations in the U.S. that offer E85? And what does it mean for the future of biofuels?

Ethical issues for ethanol

Around the world, most ethanol is produced from either corn or sugar cane.

Although around 95 percent of all E85 is produced from domestically-farmed corn, some academics question the ethics of producing fuel from food crops when the world’s population is struggling to feed itself.

FlexFuel badge on E85-capable 2009 Chevrolet HHR

Moreover, in countries like Brazil -- where rainforests are being illegally cleared to make way for more biofuel crops -- the demand to grow biofuel crops is having a detrimental effect on indigenous flora and fauna.

And for some religions, there’s even ethical questions that suggest using Ethanol-based fuels is nothing more than a sin.

Subsidies, import protection to end

Earlier this summer, the U.S. Senate voted to end subsidies for the production of ethanol in the U.S, killing the 45-cents-per-gallon ethanol blending credit that farmers and ethanol producers had been able to claim.

At the same time, the U.S. Senate ended the 54-cents-per-gallon import duty on ethanol imports, making it cheaper to import E85 from outside the U.S.

Sadly, importing ethanol means facing the same problems as buying foreign oil, including being subjected to massive price fluctuations, not to mention facing the number of political and ethical challenges associated with buying ethanol from countries like Brazil.

In short, ethanol has become a political hot potato.

E85 station in Los Angeles

Cheaper, but less energy

This summer, the price of corn-based ethanol prices reached a three-year high, driven in part by a lower-than-expected corn harvest yield.

Secondly, E85 contains less energy per gallon than gasoline. As a consequence, anyone driving a flex-fueled car on E85 will discover that they can’t travel as far on a full tank, meaning they’ll have to fill up more often.

And that’s the double-whammy. When ethanol was considerably cheaper than gasoline, people didn’t mind filling up more often if they could get substantial savings. But with E85 becoming increasingly expensive, flex-fuel drivers are happy to use gasoline instead.

Flex-fuel cars: no range anxiety

As the name suggests, flex-fuel vehicles can use gasoline, E85, or a mixture of the two as fuel.

2009 Chevrolet HHR E85

As a consequence, there’s no onus on the car driver to fill up on E85. And unlike plug-in car drivers who have to plan their longer trips to include somewhere to charge up, flex-fuel drivers just stop whenever they come across a gas station, regardless of which fuel is sold.

In fact, until carmakers started labeling them with "FlexFuel" badges and fitting bright yellow gas caps, hundreds of thousands of drivers of such vehicles had no idea they were driving a car that could run on anything other than gasoline.

For a Flex-fuel driver, finding somewhere to refill that sells E85 isn’t a prerequisite of making a long-distance trip, while electric car owners need to find somewhere to recharge for trips beyond the range of their car.

Source: Green Car Reports