There’s at least one place where government subsidies and mandates are delivering: ethanol. Production of ethanol in the United States increased 719 percent between 2000 and 2010, from 1.6 billion gallons to 13.2 billion gallons. (See Figure 1.) Since ethanol receives a 45 cents per gallon tax credit, you can see how the tax subsidies have soared to about $6 billion a year.
Figure 1: U.S. Ethanol Production
Source: Energy Information Administration.
That’s not the only interesting feature of ethanol. It also benefits from a 54 cents per gallon tariff against imports, which was chiefly designed to protect this “infant” industry from cheaper sugar cane-based ethanol from Brazil. So it may come as a surprise that instead of fighting off Brazilian imports, we have so much surplus ethanol now that we’re exporting it to Brazil (among other nations). So far through September of this year, the United States exported 7.2 percent of its total ethanol production to Brazil, which, incredibly, is our highest export market for ethanol. Overall, the United States exported 8.2 percent of its total ethanol production so far this year, up from 3 percent in 2010. (See Figure 2.)
Figure 2: U.S. Ethanol Exports
Source: Energy Information Administration.
The reason ethanol is in surplus is that we can’t use much more of it in the gasoline supply. Right now ethanol is blended with gasoline at a 10 percent concentration. No wonder the ethanol lobby wants to mandate that the blend be increased to 15 percent, even though there is evidence this amount of ethanol will be damaging to many older engines. Regardless of this controversy, is there any reason American taxpayers should be shelling out multiple billions for another farm export industry?
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Regrettably, Mr Hayward has one major fact wrong. The 45 cent per gallon tax credit goes to the ethanol blender, usually an oil company, not to the ethanol producers and it is only applicable to ethanol blends sold in the U.S. Ethanol exported to Brazil and other countries is done so without any subsidy. This is possible because ethanol from corn is currently cheaper to produce that ethanol from sugar cane. The 54 cent tariff is irrelevant.