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GENEVA, Switzerland, November 1, 2006 (Refocus
Weekly)
The United States provides billions of dollars a
year to subsidize the production of green fuels.
Tax breaks and subsidies to produce biofuels will range from
US$5.5 to $7.3 billion this year alone, according to the Global
Subsidies Initiative in ‘Biofuels - At What Cost? Government Support
to Ethanol & Biodiesel in the United States.’ GSI is part of the
International Institute for Sustainable Development and funded by
the governments of the Netherlands, Sweden and New Zealand.
The largest subsidy is the 51¢ a gallon tax credit to refiners for
using ethanol, but the study also includes subsidies for growing
corn as well as state and federal incentives to encourage production
and use of ethanol. The group argues that there are better and less
expensive means to reduce the use of fossil fuels than to subsidize
and mandate the use of green fuels.
“Subsidies to biofuels have reached record levels in the United
States and are a costly way of achieving public policy objectives,”
says Simon Upton of the GSI. “Many of these subsidies are poorly
coordinated and targeted.”
“All indications are that subsidies are being piled on top of one
another without policy makers having a clear idea of their potential
impact on the environment and the economy,” he adds. “Yet the
potential for waste on a grand scale and some spectacularly perverse
environmental outcomes is large.”
The subsidies to biofuels of $5.5 to $7.3 billion a year will
increase significantly if current policies remain in place, as most
subsidies relate to output, which is increasing at double-digit
rates of growth. Subsidizing ethanol production costs U.S. taxpayers
$17 for every million BTU; a study in 1989 estimated that subsidies
for oil and natural gas were 40¢ per million BTU in 2006 dollars.
Government subsidies to biofuels have been promoted as a means to
address environmental concerns as well as energy security and rural
development, but the cost-effectiveness of achieving these goals
under the current subsidy regime is low, the report adds. Biofuels
are “an extremely high-cost means for reducing GHG emissions” and it
costs $500 in federal and state subsidies to reduce each Mt of CO2
through the production and use of corn-based ethanol.
“That could purchase more than 30 metric tonnes of CO2-equivalent
offsets on the European Climate Exchange, or nearly 140 metric
tonnes on the Chicago Climate Exchange,” notes author Doug Koplow.
The levels of government support to biofuels appear out of
proportion to their ability to satisfy domestic transportation
applications, with current forecasts predicting that biofuels will
account for 5% of total transport fuel in 2010.
“There is an urgent need to examine the claimed benefits from
biofuel subsidies, and to compare them with the costs of meeting the
same goals in other ways,” says Upton. “Until then, we suggest that
the U.S. Congress and the states declare a moratorium on programs
that would increase or extend subsidies to liquid biofuels, with a
view to developing a plan for phasing out subsidies to all transport
fuels as quickly as possible.”
The federal government in the U.S. started supporting ethanol in the
late 1970s, by reducing the excise tax for gasohol (a blend of 10%
ethanol and 90% gasoline). A secondary tariff of 40¢ per gallon
(since increased to $0.54) was imposed at the same time on imported
supplies of ethanol, and several states followed the federal lead by
reducing their own fuel taxes on gasohol.
By the end of this decade, assuming continuation of current
policies, annual support for ethanol will range from $6.3 to $8.7
billion a year. Subsidies to biodiesel could rise to $1.7 to $2.3
billion within three years, it adds.
The displacement ratios for cellulosic feedstocks are “markedly
better than those for corn-based ethanol or biodiesel” but many
existing subsidies are “justified on the grounds that they are
paving the way for a cellulosic ethanol industry,” the report
explains. “Political support for subsidies to biofuels has been
described as a perfect storm, combining the powerful interests of
agriculture, the national security community, and a significant
portion of the environmental community.”
The analysis of the U.S. market is the first of six country studies
that will be released over the coming three months.
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