Studies find subsidies favor petroleum

By Erin Voegele | November 11, 2009
Two recent reports highlight the challenges facing the biofuels industry. The first study, conducted by the Environmental Law Institute in partnership with the Woodrow Wilson International Center for Scholars, "Estimating U.S. Government Subsidies to Energy Sources: 2002-2008," offers a comparison of federal subsidies provided to fossil fuels and renewable sources of energy from fiscal year 2002 through fiscal year 2008.

The study concluded that during the seven-year period, approximately $72 billion in subsidies were provided to benefit the fossil fuels industry, while only $29 billion in subsidies were provided for renewable sources of energy. Less than 25 percent of the renewable energy subsidies specifically benefitted corn-based ethanol.

Of the $28.9 billion in subsidies that supported renewable energy, $11.6 billion went to the Volumetric Ethanol Excise Tax Credit and approximately $5 billion went to corn subsidies. Other major areas of renewable energy subsidies included $5.2 billion for the Renewable Electricity Production Credit, $259 million for the Renewable Energy Investment Credit, and $200 million for the Five-Year Modified Accelerated Cost Recovery System Period for Solar, Wind, Biomass and Ocean Thermal.

Only $198 million was used to support the Alcohol Fuel Blender Credit, which can be taken in lieu of the VEETC, and $182 was attributable to the Biodiesel Blenders Credit and Biodiesel Excise Credit. An additional $165 million in subsidies supported the deduction for clean fuel vehicles and refueling property in relation to biofuels, and $39 million supported the credit for clean fuel vehicles and refueling property for biofuels. Rounding out the $28.9 billion in subsidies was $85 million for clean renewable energy bond holders and $1 million supporting special depreciation for cellulosic plant property.

A second study, titled "Potential Effects and Challenges for Required Increases in Production and Use," was compiled by the U.S. Government Accountability Office at the request of Sens. Barbara Boxer, D-Calif., and Susan M. Collins, R-Maine.

The report studies the effects of increased biofuels production on agriculture, the environment and greenhouse gas (GHG) emissions, as well as examines federal support for domestic biofuels production and key challenges in meeting the renewable fuel standard (RFS). To complete the report, the GAO reviewed a variety of scientific studies, interviewed experts and agency officials and visited U.S. DOE and USDA laboratories.

In its report, the GAO also makes several suggestions as to how biofuel policy can be improved. The office encouraged Congress to consider requiring the U.S. EPA to develop a strategy for assessing lifecycle environmental effects of increased biofuels production beyond the effects of GHG emissions. According to the report, this could include evaluating the effects of increased biofuel production on water, air and soil quality. The report also recommends that the EPA, DOE and USDA develop a coordinated approach for addressing uncertainties in lifecycle GHG analysis and give priority to research and development initiatives that address the blend wall issue.

The GAO also encouraged lawmakers to consider whether revisions should be made to the VEETC, which was originally established to help spur the growth of the ethanol industry. According to the report, this credit may no longer be needed because unless crude oil prices rise significantly, it is unlikely the tax credit will stimulate ethanol consumption beyond levels specified by the RFS. In addition, the report claims that the U.S. corn ethanol industry is mature and production levels already near the RFS limit of 15 billion gallons per year.

The GAO states that the VEETC's annual cost to the U.S. Treasury in forgone revenues could increase from $4 billion in 2008 to $6.75 billion in 2015 for conventional corn ethanol.