Putting Limits on Ethanol Subsidies

June 24, 2008

Over the years, the reputation of ethanol has swung from one extreme to another. For a long time, the corn-based fuel was seen as the quintessential special interest, with promoters such as Archer Daniels Midland soliciting support in Washington via

lavish spending

on campaign contributions and lobbying. In recent years, ethanol and other biofuels were suddenly recast as the

silver bullet

in fighting global warming and reducing dependence on oil from insecure foreign sources.

Now the image of ethanol is turning negative once again. The diversion of corn output into fuel production is

being depicted

as a major cause of escalating food prices that in some countries have sparked civil disturbances. At the same time, various

scientific studies

have concluded that biofuels may actually be doing more harm than good in the effort to limit greenhouse gas emissions.

Many of ethanol’s true believers are not budging, however. This week the

New York Times

ran a

front-page story

describing how Sen. Barack Obama continues to act as a cheerleader for the fuel and maintains close ties with the ethanol industry, some of whose boosters (such as former Senate Majority Leader Tom Daschle) are playing key roles in his campaign.

Ethanol subsidies

are not only a federal matter. More than a dozen states have jumped on the bandwagon, offering a variety of direct and indirect tax credits and other incentives for ethanol producers. Little is being done to turn off the spigot now that the drawbacks of biofuels are becoming more apparent.

One reason may be that some legislators have a very profound conflict of interest—they are themselves recipients of the subsidies. A recent Associated Press


found that in Missouri, for instance, about 20 present or former state legislators and other officials have received biofuel-related subsidies, included one who has reaped more than $200,000.

It’s time for politicians, both in Washington and in state capitals, to take a more balanced view toward ethanol. Biofuels are certainly part of the energy mix needed to counteract global warming, but only within limits. Rather than serving as an open-ended giveaway, subsidies need to be calibrated to reflect those limits.