News / USA

Congress Considers Cutting Gasoline Makers' Ethanol Subsidy

Tax credit under fire from hunger advocates, food manufacturers

About 40 percent of the US corn (maize) crop goes to the production of ethanol.
About 40 percent of the US corn (maize) crop goes to the production of ethanol.

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Ninety organizations are calling for an end to the $6 billion-dollar-a-year subsidy that encourages the production of ethanol biofuel from maize in the United States.

Ethanol makes up about 10 percent of the gasoline fueling cars in the United States, and almost all of it is made from maize.

"It’s renewable and domestic, home-grown," says Bob Dinneen, president of the Renewable Fuels Association, who adds that this home-grown source of energy is reducing the nation's dependence on foreign oil.

A 2007 U.S. law requires motor fuel to include renewable fuels. And - for blending in ethanol - gasoline makers get a tax credit that adds up to about $6 billion this year.  

Skyrocketing production

Production of ethanol from maize, also called corn in the United States, has skyrocketed in just the last few years to meet the demand, says Purdue University economist Wally Tyner. "It’s gone from 5 percent of our corn crop to almost 40 percent of our corn crop today. So it’s a huge change."

Critics say that huge change is one of the reasons corn prices on global markets have risen 77 percent over a year ago.

Tyner agrees ethanol is a factor, but he also points to a number of other factors driving prices up. Bad weather last season cut supplies in major producing countries, while demand for food and animal feed is rising, especially in Asia.

Rising corn prices

The impacts of rising corn prices are greatest in the developing world, where many people spend most of their income on food.

"Even if they rise a little bit in a local market, poor and vulnerable people are feeling that the most strongly," says Marie Brill, with the advocacy group ActionAid.

ActionAid was one of the 90 organizations that wrote to U.S. congressional leaders urging an end to the ethanol tax credit. The list also included food manufacturers and meat and dairy groups hit by rising prices.

"We don’t need to put good taxpayer money after bad biofuels at a time when the industry can compete on its own," says Brill.

However, Bob Dinneen with the Renewable Fuels Association says the role of ethanol in rising food prices has been greatly overstated.

"I’m not going to say no role, but a very small role," he says. "The fact of the matter is, what is driving food price inflation today is skyrocketing energy costs. Period."

Corn prices on global markets have risen 77 percent over a year ago. Critics blame ethanol production.
Corn prices on global markets have risen 77 percent over a year ago. Critics blame ethanol production.

Food security vs. energy security

With crude oil trading at around $100 a barrel, Dinneen believes subsidies for the petroleum industry should be on the table, too. He says the ethanol industry is open to changes but adds that the industry’s potential to help meet the country’s future energy needs should not be sacrificed.

"Look, we produce from grain today. But there is not an ethanol producer in the country that isn’t looking for new feedstocks, new technologies to continue to grow the industry in a sustainable fashion," says Dinneen.

While the search for new technologies continues, food crops remain the primary source for biofuels - a questionable route to independence from foreign oil, according to ActionAid’s Marie Brill.

"If what we really want in our oil independence is national security," she says, "then we need to make sure we’re not putting at risk our food security."

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