Not So Happy New Year for Ethanol. . .

. . . but happier for taxpayers.  The Wall Street Journal noted the other day that the last-minute train wreck of a budget deal that passed right before the holidays contained one bit of good news for taxpayers—the end of ethanol subsidies:

Congress adjourned this month without extending the $6 billion annual tax subsidy for blending corn ethanol into gasoline and the steep import tariffs on the industry’s foreign competitors. Both turn into a pumpkin at the stroke of the New Year.

About damn time.

I was startled to hear recently that we’re making so much ethanol now that we’re exporting the stuff.  Ethanol production soared 719 percent over the last decade—see Figure 1—and 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.  But why are we exporting the stuff, and more to the point, if we’re exporting the stuff, why should there by a 54 cents a gallon import tariff to protect this supposedly “infant” industry?

Figure 1: Total Ethanol Production

Guess who our top export market is?  Brazil.  Brazil, the very country whose cheaper-to-make sugar cane-based ethanol is the supposed reason we have the tariff.  So far through September of 2011 (the most recent data available), the U.S. exported 7.2 percent of its total ethanol production to Brazil, which incredibly is our highest export market for ethanol.  Overall, the U.S. exported 8.2 percent of its total ethanol production so far this year, up from 3 percent in 2010.  (See Figure 2.) No wonder the ethanol lobby is pushing the government to mandate that gasoline-ethanol blends go from 10 percent ethanol to 15 percent ethanol, even though 15 percent ethanol may damage many existing engines.

Figure 2: U.S. Ethanol Exports, 2010-2011

Again, about damn time taxpayers stopped subsidizing what amounts to another export sector for agribusiness.  Let’s hope Congress doesn’t bring it back when the budget comes up again in a few months.

UPDATE:  Several commenters below suggest other stupid subsidies ought to go next.  The Washington Post editorial page agrees about electric car subsidies.

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