Ending the Century of Subsidies

By Tom Buis | April 16, 2013

As we all know, the ethanol industry recognized it was time to end federal subsidies and collectively asked the federal government to end the subsidies for grain-based, first generation ethanol. The Volumetric Ethanol Excise Tax Credit was no longer needed. The ethanol industry had matured, it was standing on its own and demand was up. The goal of the leaders in the ethanol industry has always been to increase America’s energy independence with homegrown, renewable fuel.

Ethanol is the lowest-cost, most-competitive liquid fuel available in the marketplace today. It is generally understood that when we move towards new energy sources, there often is some level of incentives to help that technology grow and become cost competitive, giving the industry time to mature and compete on its own. First-generation ethanol has done that. The industry has matured and is operating freely without any federal subsidies. 

Yet, 100 years later, Big Oil refuses to give up its excessive tax subsidies.

The petroleum industry continues to enjoy immense tax breaks and subsidies that have been in place for nearly a century. In fact, one such oil subsidy just reached a milestone of 100 years on the books. This begs the question—why do we still highly subsidize one of the most profitable industries ever, with federal taxpayer dollars? The oil industry is mature, making record profits, and yet continues to gorge at the trough of the public treasury.

While Big Oil has a near stranglehold on the liquid fuels market, ethanol is starting to break through oil's near-monopoly, and in doing so ethanol’s success has threated the bottom line of many oil companies. American consumers see that ethanol revitalizes rural communities and spurs economic growth by creating new jobs that cannot be outsourced throughout America’s heartland. They also enjoy cost savings and a choice at the pump. American consumers are lining up to get more and pay less—with higher blends of ethanol. Not only is it less expensive, it has a higher octane rating and is a better-performing fuel.

Just the other month, the International Monetary Fund released a study which concluded that, “broad reform of the world’s energy subsidies could lead to long-term economic growth.” The study further noted that, “while aimed at protecting consumers, subsidies aggravate fiscal imbalances, crowd-out priority public spending, and depress private investment, including in the energy sector. … Subsidies also distort resource allocation by encouraging excessive energy consumption, artificially promoting capital-intensive industries, reducing incentives for investment in renewable energy, and accelerating the depletion of natural resources.”

First-generation ethanol has already voluntarily given up its tax incentives, now it is time for Big Oil to do the same.

Time and again, oil companies fight renewable fuels and while they may pay lip service to supporting renewables, they erect every legal, regulatory and public affairs hurdle to prevent biofuels from succeeding. It’s time they get out of the way of advancements in renewable fuels and also give up the excessive subsidies they enjoy.

Let’s take a look at what Big Oil gets and gives back. They enjoy record subsidies; in fact, the mature oil industry may be the most subsidized in U.S. history. It is truly unfortunate that we continue to transfer hundreds of billions of American dollars overseas to politically hostile and unstable regions, when we should be investing that money right here, at home—developing sustainable and renewable fuel sources for the future.

In return for all the subsidies the taxpayers hand out, we get oil spills, excessive price spikes and record costs each year for gasoline, even as Big Oil touts the so-called domestic energy boom. If we are producing so much at home, why do prices at the pump continue to rise?

The bottom line is that Big Oil continues to take in, while it puts corporate profits ahead of the public’s interest and safety. They are simply complacent in the ongoing activities that are harmful to their own consumers. They will continue to extract oil from tar sands, regardless of the environmental impact, and if I were a betting man, I would say the BP spill in the gulf, is not the last one we will see from Big Oil.

We need to stop the insanity of subsidizing the most profitable companies that pollute our environment and cost us billions. It is time to move forward with renewable fuels, like higher blends of ethanol, such as E15.

Author: Tom Buis
CEO, Growth Energy