The end of the federal ethanol subsidy, in Minnesota and everywhere


It took effect,a couple of days ago.

Call it a holiday miracle. For decades, conservative critics have assailed federal ethanol subsidies of 45 cents per gallon as corporate welfare that came to cost taxpayers as much as $6 billion per year. Liberal critics joined the chorus as they noticed that the Volumetric Ethanol Excise Tax Credit drove up corn and feed prices. Also, studies had begun to show that, contrary to expectations, the corn ethanol industry increased net carbon emissions…

Last month, the unthinkable happened – during the lead-up to the Iowa caucus no less. The do-nothing Congress did nothing in a good way.

It adjourned without extending the 45-cent-per-gallon ethanol subsidy, as well as a 54-cent-per-gallon tariff on imported ethanol.

Anything related to biofuels is complex, economically and politically, and I’m certainly not pretending to do anything comprehensive in one brief post; I’m just marking the occasion. Most of the subsidies were actually paid to oil companies, not farmers, but they did indirectly expand the markets, and therefore help boost the prices, for the latter’s product. If you search something like “Minnesota farmers ethanol subsidies,” as I did, you can find some articles insisting that the end of the subsidies will be disastrous for corn farmers, and others to the effect that it will be meaningless in the short term and ultimately beneficial for them in the long one. So, this is probably about right.

…(Fed economic analyst Joe) Mahon cautioned that the issue of removing ethanol subsidies is complicated, saying it would be “kind of hard to predict how large the impact or the direction of the impact” on the ag economy.

With a growing world population, and that with an increasing appetite for corn-fed meat products, it seems highly unlikely that the demand for Minnesota corn will fall off a cliff. Moreover, continued high oil prices should mean that ethanol will be competitive without the subsidies. We’re presumably going to find out.