Ethanol business can survive without subsidies

If the recent election was a victory against earmarks, Iowa's ethanol business may be quaking.Iowa, after all, accounts for 25 percent of U.S. ethanol production.In the election's extended aftermath, there are rumblings that federal subsidies for corn-based fuels may be eliminated.

There are now calls from Jim DeMint and Tom Coburn, Republican U.S. senators from South Carolina and Oklahoma, respectively, to urge Congress to allow ethanol subsidies -- which include a 45-cent-per-gallon tax credit for ethanol blenders -- to expire.

They will, doubtless, pressure Iowa's GOP Sen. Chuck Grassley, a vocal proponent of the subsidies, to follow the conservative party line. It also could put a bull's eye on the rest of Iowa's Congressional delegation who support ethanol subsidies.

Many victors in the recent elections were swept into power on the promise they would eliminate taxpayer subsidies for enterprises like ethanol.

Corn-based fuel is a moneymaker in Iowa and, although the price of corn plays a key role in how much money is at stake, there is money to be made even if the price drops, as it did in November, said Garrett Toay, of Toay Commodities Futures Group in Clive.

What happens if refiners lose all or part of the tax credit?

Not much, Toay said.

"The biggest issue may not be the tax incentive, although obviously the industry doesn't want to lose it," he said. "As long as they don't touch the mandate."

Federal rules now require 12 billion gallons of ethanol production per year. That's due to go up to 12.5 million next year.

That's the real sacred cow, Toay said.

"If they tinker with the mandate, that's when it gets real iffy about the ethanol industry overall," he said.

Losing the tax incentive might cost 100 million to 300 million gallons in production, Toay said.

"That's probably not that much in the grand scheme of things," he said.

Two years ago, the ethanol industry collapsed when corn prices took a dive. But, there isn't much chance of that happening again, Toay said.

"The ethanol industry is leaner and meaner," he said.

Who else gains from ethanol production? Certainly not consumers, who end up paying more for food. Even arguments that ethanol is eco-friendly have been debunked.

In 2009 alone, U.S. taxpayers shoveled $7 billion into ethanol. The Reuters news service reports that this year 41 percent of American corn, or 15 percent of the global crop, will end up in the ethanol market.

That means higher food costs.

Ethanol is a cause celebre in Iowa. It's money in the pockets of corn growers; the problem, however, is the costs for everybody far outweigh the benefits to a few.

If corn-based fuel has a legitimate value in the marketplace, it should make its own case, without artificial props that end up skewing the fuel and food markets.

Now, more than ever, is the time to put every subsidized commodity to the same test.

source: wcfcourier