Looking at How Corn-based Ethanol and Other Alternative Energy Subsidies Stack Up
Previously published on Jan 6, 2011
As of December 31st, 2010, two sets of subsidies expired. One was a 30 percent discount tax credit/grant for alternative energies like solar and wind; the other was a 45 cent per gallon tax credit for ethanol primarily derived from corn-based production methods. Having tied renewal of the subsidies together in a compromise bill, any legislative action to restore the tax breaks will probably result in the renewal of both as well as a 53 cent per gallon tariff discouraging the consumption of foreign sugar-based ethanol. The problem is that one offers an opportunity for the future; whereas, the other is a burden on taxpayers that hurts consumers.
We should extend subsidies like tax credits when they are investments and end them when they are wasteful. Tax credits and other government sponsored subsidies can be useful investments for taxpayers. If subsidies help support and expand a viable industry that will add to our social and economic wellbeing, beyond the cost of the subsidies overtime, they are quality investments. If subsidies encourage unhealthy business practices and simply lead to long-term dependency, subsidies are likely a very damaging practice. Depending upon the consequences, a specific subsidy, or the manner in which a subsidy is applied, should either be expanded or killed.
It is obvious that America's addiction to petroleum is a threat to our economic and national security, especially considering unstable, ballooning prices as well as diminishing global reserves of crude oil and its various byproducts. Ethanol is one solution, but subsidizing corn-based ethanol is expensive, diverts food away from the food chain, increases food prices, and undermines our agricultural industry. Consequently, subsidizing corn-based ethanol, not to mention already existing corn subsidies, can only be harmful, unless it leads to better production methods that overcome these costs. Unfortunately, funding corn-based ethanol production methods will not.
On the other hand, recycling the waste products of other industries and home consumption into ethanol is likely far more cost effective in the long run, plus it deals with the need to lower carbon emissions, as well as other pollutants, in a very constructive way. Carbon capture, which might rely on alga or nonbiological chemical processes, should be favored. Giving businesses tax credits or write-offs for installing systems, which use carbon capture to produce harvestable ethanol, makes far more sense than subsidizing corn-based ethanol. At the very least, the practice of subsidizing corn-based ethanol should not be continued.
To some, the wind and solar industries are failures, because they do not offer a comprehensive alternative to fossil fuels in the near future. Of course, this view ignores the need for diversity in energy sources and the fact that we are now searching for marginal improvements in our oil production capacity to alleviate demand. Meanwhile, these industries have expanded dramatically in recent years thanks largely to significant advances in the technology and improved industrial fabrication methods. Given this progress, subsidies will likely help this mostly sustainable industry grow in the US at a far faster pace, so we can lessen our over reliance on fossil fuels and become a leader in energy production far sooner.
Moreover, government needs to expand subsidies to industries that are on a path to sustainability and address vital national interests like energy security. Then again, we must also end subsidies for industries that cause more harm than do good and cannot possibly maintain their business models in the future without subsidies. Tax credits for alternative energies like solar and wind power continue to be promising investments, yet those for corn-based ethanol are not. Consequently, government needs to act in an intelligent fashion that encourages smart business investments and discourages corporate giveaways.