End of US ethanol subsidies?
The US, and by extension global, biofuel market could be on the verge of a major shake up, after a bi-partisan group of senators yesterday tabled a new bill that would end the generous subsidies provided to US ethanol producers and axe the tariff imposed on ethanol imports.
The group, led by Democrat senator Dianne Feinstein and Oklahoma Republican Tom Coburn, argued that the 45c per gallon tax credit provided to oil refiners for each gallon of ethanol they blend with gasoline was no longer justified given the scale of the US deficit.
The tax break is expected to expire this year, but the senators argue that repealing the necessary legislation before 1 July would save the US government about $3bn.
The new bill would also repeal the 54c per gallon tariff imposed on ethanol imports – a move that could open up the fast-expanding US biofuel market to imports from Colombia and Brazil. Supporters of the bill claim that the tariff makes the US more reliant on fossil fuel imports as it stops imports of cheaper ethanol.
“It’s time we end subsidies that we cannot afford and tariffs that increase gas prices,” Feinstein said in a statement.
Her comments were echoed by Coburn who insisted that the scale of the deficit made reforms to subsidies essential.
“As our nation faces a crushing debt burden, rising gas prices and the prospect of serious inflation, continuing our parochial ethanol policy that increases the cost of energy and food is irresponsible,” he said.
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Efforts to scale back ethanol subsidies have faltered in the past with senators from farm states consistently opposing proposals that could limit support for corn ethanol.
However, the scale of the US deficit has revitalised efforts to reduce subsidies, with senators from both sides of the aisle expressing support for reforms.
The ethanol industry has broadly accepted that reforms to the subsidy regime will be required, but trade groups have maintained that support must remain if the sector is to successfully develop second-generation biofuels that do not affect food production.
