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February 23, 2011Blog

Beyond Tax Subsidies: Developing the Infrastructure for Ethanol

Historically, ethanol support has focused on the blenders’ credit and import tariff to make ethanol more competitive with petroleum. However, with oil prices at high levels and most experts anticipating that oil will only continue to go higher, ethanol is price competitive even without the current 45-cent-per-gallon blenders credit and the 54-cent tariff on imported ethanol. 

We should take this opportunity to redirect federal ethanol policy away from the current system of blenders’ credits and import tarrifs, which is politically damaging and based on government payments year after year, to a system that jumpstarts the necessary ethanol infrastructure to help ethanol stand on its own without government support. The key is a two-tier approach to make ethanol available directly to the public and bypass the oil companies. In other words, instead of paying oil companies a blenders credit to use ethanol, that money could be directed to help pay for the installation of technology on vehicles and at fueling stations across the United States. Specifically, we could take the federal money, which is currently being paid to oil companies so they will blend ethanol into gasoline, and redirect it (1) to gas stations for the installation of the infrastructure necessary to deliver ethanol blends directly to the consumer, and (2) to vehicle manufacturers and consumers to install flex-fuel technology in every vehicle being driven in the United States so that consumers would have the ability to use higher blends of ethanol if they so choose. This change in policy would both give consumers a choice of fuel and move ethanol away from government support. If this sounds radical, it isn’t.  Entrepreneurial ethanol producers in the Midwest have already proved that consumers will buy ethanol straight from the pump and Brazil’s vehicle owners overwhelmingly drive flex-fuel cars.

The battle over federal ethanol supports at the end of 2010 has made it clear that the political world is changing. Whether it is the political power of ethanol’s critics or the reality of America’s huge budget deficits, the fact is that ethanol needs to be thinking ahead and planning for a day when there are no federal supports. What will be our solution for that day? Can ethanol survive when that day comes? Yes it can, but we need to start planning for it now.

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