Tax breaks and biofuels

Bioethanol and biodiesel cost the US taxpayer between $5.5bn and $7.5bn in tax breaks, are ruining the countryside and storing up trouble for the future, according toBiofuels: At What Cost? a report from the Global Subsidies Initiative which was launched by The International Institute forSustainable Development in Canada.

The IISD is funded mostly by grants from the Government of Canada, a number of Canadian provinces, the UN, Nations, International organizations, philanthropic foundations which totalled around Can$12 m on 31 March this year. (oh, there’s $25,000 from Shell Canada in there), so it should be pretty independent of the pressures that could be applied more directly to groups with other structures.

Scooting through the executive summary, we find that the US produced around 3.9bn gal (about 15 bn litres) fuel ethanol in 2005, which received an average $0.51/gal tax credit. Biodiesel production reached 75m gallons in 2005, and attracts a tax credit of $0.50 for diesel produced from waste grease and $1.00 for biodiesel made from virgin vegetable oil or animal fats. These biofuel tax-breaks come from the American Jobs Creation Act and are scheduled to expire in 2008, but they may be extended. That’sthe federal level, but with 48 states acting fairly independently in this area and subsidising in turn. How to describe the situation? I’d say shambles; the report, rather politely states:

These subsidies are the result of many independent decisions at different levels of government, resulting in policies that are often poorly coordinated and targeted… in many locations producers have been able to tap into many sources of subsidies

Were I of a more cynical stripe, than my cuddly image suggests, I might find it unsurprising that so many people in the US are keen on biofuels. They make a lot of money and to hell with the consequences. The summary continues:

Subsidies to liquid biofuels are being injected into an already distorted agricultural economy — one through which billions of dollars of in support are channelled each year — and an energy market that is itself distorted by subsidies and special tax breaks.

Yes farmers all over the world get subsidies, why don’t we run the countryside on real economics?

Echoing my post Water and Biofuels, the report saysAquifer

Corn in particular is a crop that requires a lot of water, and the current trend in the expansion of corn-based ethanol is westward into areas that are more dependent on overstretched water sources like the Ogallala Aquifer than corn which is produced in the central Midwest.

Were this my report, I’d consider shouting: “You’re draining it dry, stop already!”, but that’s not the language NGOs find themselves using.

So just how renewable are bioethanol and biodiesel produced this way. You can guess my thinking… as the report says

By stimulating domestic biofuel production based on corn and soybeans the country is, in effect, promoting “renewable fuels” that require lots of non-renewable inputs.

So what should the US do?

…declare a moratorium on all proposals for increasing or extending subsidies to liquid biofuels or to their petroleum counterparts. The ad hoc system that has characterised subsidies to transport fuels for too long should be replaced with one that starts by removing existing subsidies and forces recipients to compete for those that remain.

That looks harsh but will probably be the only way to sort out the morass of differing federal, state and local legislation that should be stimulating the biofuel industry.

Don’t get me wrong. There should be subsidies to start strategic biofuel industries off. But that money should be spent in a sensibly planned way, and it should be money a country can afford to lose, not frittered away on a small bets ion games where the rules are badly understood. Am I wrong? let me know..

Technorati Tags: , , , , , , , ,

, , , , , , , ,

One Response to Tax breaks and biofuels

  1. Texan 30 October, 2006 at 9:53 am #

    the perspective in the US market is not that biofuels can replace oil, but rather to add an alternative and supplement oil’s use factor.

    For example, the ethanol industry is aware that even E85 as a fuel must still be blended with petro based gasoline. And, in the biodiesel field, at a recent conference I attended, the goal is to achieve a 2-5% market share level over the next 5 years. Relevant to biofuels from oils: that would likely be more of an issue for Asia. In the US, while soyoil is the preferred feedstock, biodiesel of satisfactory quality can be just as efficiently produced from animal fats and yellow grease, neither of which affect the food oil status.

    While the food versus fuel issue is being discussed, it is a more or less background item in these emerging markets.

    Ethanol as an oxygenate is a viable commodity, but even as an oxygenate it’s top blending percents are not greater than the 5-7% levels first structured in California’s initiatives. There is no US federal mandate to use ethanol or biodiesel. There is only a mandate to begin a graduated use of renewable fuels to meet the requirements of the Renewable Fuel Standard (RFS) placed under the jurisdiction of the Environmental Protection Agency (EPA) in the Energy Pact Act of 2005 (EPACT).

    Additionally, although you may already be aware of this, cellulosic ethanol remains in the developmental stages. I think the enzymatic process that converts the cellulose subject into the alcohol is only about ½ progressed. I’ve heard one company in Canada has produced some batches, but I do not think any cellulosic ethanol is being sold into the commercial market at this time.

Leave a Reply