Subsidies and Mandates for Biofuel Don’t Provide Enough Stability?

- by Nico­las Loris, May 16, 2014, Source: The Foundry

With the Sen­ate con­sid­er­ing extend­ing a pack­age of tax cred­its that expired at the end of 2013, six Sen­a­tors have band­ed togeth­er to call on Con­gress to re-up the expired bio­fu­el credits.

In par­tic­u­lar, tax cred­its of $1 per gal­lon pro­duced was offered for blend­ed diesel made with agri­cul­tur­al prod­ucts. Appar­ent­ly, decades of hand­outs worth bil­lions of dol­lars, a fed­er­al man­date for bio­fu­el pro­duc­tion, and numer­ous state “incen­tives” just aren’t enough sta­bil­i­ty for those feed­ing from the trough filled with tax­pay­ers’ money.

The Sen­a­tors point­ed to a drop in biodiesel pro­duc­tion in 2014 as evi­dence of the need for con­tin­ued gov­ern­ment sup­port. Biodiesel pro­duc­tion in Jan­u­ary 2014 was 65 mil­lion gal­lons low­er than Decem­ber 2013. That’s because bio­fu­el pro­duc­ers are gorg­ing on tax­pay­ers’ mon­ey to over­sup­ply the market.

And the tax cred­it is only a part of how the gov­ern­ment sup­ports bio­fu­el pro­duc­tion. Con­gress man­dat­ed pro­duc­tion of bio­fu­els in the 2005 Ener­gy Pol­i­cy Act, and the Ener­gy Inde­pen­dence and Secu­ri­ty Act of 2007 amped up the pro­duc­tion quo­tas to 36 bil­lion gal­lons by 2022, includ­ing biodiesel.

If that weren’t enough, most states pro­vide tax cred­its, loans, grants, and reg­u­la­tions for renew­able fuel pro­duc­tion. For instance, Sen­a­tor Al Franken (D–MN), one of the Mem­bers pitch­ing for bio­fu­el sta­bil­i­ty, has a laun­dry list of incen­tives, laws, and reg­u­la­tions in his home state, but appar­ent­ly he needs the fed­er­al tax­pay­er to pitch in even more.

Remov­ing the fed­er­al government’s pref­er­en­tial treat­ment doesn’t spell the end of the indus­try. It would remove the uncom­pet­i­tive ele­ments of the indus­try and free up the resources not depen­dent on the tax­pay­er to be more valu­able else­where in the econ­o­my. Prob­lems of insta­bil­i­ty come from an inabil­i­ty to com­pete in the mar­ket, not from extend­ing a tax cred­it they knew was set to expire.

Dis­plac­ing oil with ethanol in the gaso­line mar­ket may be reduc­ing Amer­i­cans’ depen­dence on oil, but it’s a very small reduc­tion at a very high cost. In 2011, bio­fu­els account­ed for only 4 per­cent of the trans­porta­tion fuel used in the Unit­ed States, and because ethanol is less ener­gy-dense, the dis­place­ment of oil is even less than that. Even this small share of the mar­ket is also due to strong polit­i­cal effort—a fed­er­al man­date and bil­lions of dol­lars in tax­pay­er sup­port.

We don’t know if bio­fu­els are an Amer­i­can suc­cess sto­ry, because bio­fu­els haven’t com­pet­ed in a free mar­ket. But it is clear that the pol­i­cy is a com­plete and utter fail­ure that ben­e­fits a select group of spe­cial inter­ests at the expense Amer­i­can tax­pay­ers and fuel consumers.