Corn ethanol not so long ago was the darling of the green movement, and Congress responded by lavishing on growers and blenders of the alternative fuel lucrative tax credits and favored tariff protections. So much for the free market.
But that was then. Now, by a huge bipartisan margin, the U.S. Senate has voted to end the tax credits. It's likely that tariff protections are at risk, too. Is this a free market revival?
"The best way for ethanol to survive is to stand on its own two feet, without spending something we don't have to get something we're going to have anyway," said Sen. Tom Coburn, R-Okla., who spearheaded the vote.
Mr. Coburn was acknowledging the government's cash shortage. But he also was referring to the fact ethanol producers will remain favored by a government mandate that refiners by 2022 must blend 36 billion gallons of biofuels into auto fuel, guaranteeing an artificial demand for the product.
Last week's Senate vote may not quite signal a free-market renaissance, but it was a step in the right direction. The 73-27 vote to end ethanol tax credits may herald a long-overdue austerity movement. Could pork-funding, lavish spending and special-interest pandering in Washington grudgingly be giving way to new frugality in face of monumental deficits and debt?
Joining Mr. Coburn, a conservative Republican, was none other than California's liberal Democratic Sen. Dianne Feinstein. This odd alliance mustered a supermajority rarely seen on anything more substantive than nonbinding resolutions on motherhood and the flag.
"This is going to be the first of many coming down the line," Ms. Feinstein said of the tax credit vote.
We instinctively flinch when government eliminates any tax break. Government takes too much in taxes, and any relief is welcome. But tax breaks intended to determine winners in the market – and, therefore, dictate losers – are harmful. It would be better to give all taxpayers identical breaks. Without government's preferential treatment, ethanol cannot thrive.
Moreover, ethanol's alleged benefits increasingly are acknowledged to pale in comparison with the harm it does. Tax breaks and other preferential government treatment created artificial demand for corn that boosted its price, diverted its production and consequently reduced food supplies, driving up their cost, including beef because corn is food for cattle. The artificially stimulated agricultural business created new environmental problems, such as massive erosion. Ethanol itself is inherently harmful, corroding pipelines, storage tanks and engines. Land was diverted from more productive and beneficial uses, all to produce a fuel about 35 percent less energy-efficient than gasoline, which it is supposed to replace.
The ethanol boondoggle is a classic case of well-intentioned government meddling resulting in costly, damaging, unintended consequences. It's also a casebook study on the difficulty of getting rid of such an entitlement once an entire industry relies on favored government treatment.
The ethanol vote was on an amendment attached to an unrelated economic development bill that may not pass the Senate, according to MarketWatch.com. But it likely foreshadows that ethanol tax breaks won't be extended when they expire this year, which will mean about $6 billion more for the U.S. Treasury.
