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What Could Progressives and Conservatives Possibly Agree On? (Hint: Changing U.S. Ethanol Policy)

by Joel Velasco on Jun 15, 2010

These days in DC, it’s tough to get Progressives and Conservatives to agree on anything. Open up today’s Washington Times, however, and you’ll find that both ends of the ideological spectrum may have found common ground in calling for a change in U.S. ethanol policy.

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These days in DC, it’s tough to get Progressives and Conservatives to agree on anything. Open up today’s Washington Times, however, and you’ll find that both ends of the ideological spectrum may have found common ground in calling for a change in U.S. ethanol policy.

In an op-ed entitled “Ending the Ethanol Experiment: Government Protection of Producers Should Cease,” the Competitive Enterprise Institute’s Brian McGraw lays out a convincing case for changing U.S. ethanol policy by ending the tariff on imported ethanol, and also subsidies for domestic producers. Here are some of the highlights:

Taxes on imported ethanol force consumers to rely on inefficient and expensive ethanol produced from corn in the United States. These tariffs, in effect, declare war on consumers, raising the price at the pump as well as the price of all goods and services that require transportation to their final point of sale.

They also perpetuate our dependence on foreign oil by reducing investment in the global ethanol industry. If foreign ethanol is less profitable because the U.S. effectively shuts it out of our market, less money is poured into its development. The irony is delicious. While politicians pay lip service to diversifying our energy sources, trade policies such as import tariffs may have the opposite effect.

Taxing foreign ethanol is bad, but subsidizing domestic production is as bad or worse. The current ethanol subsidy is a 45-cents-per-gallon federal tax credit, and payments since 2005 have exceeded $20 billion. This acts as a double benefit: Ethanol producers already are guaranteed income through legislation that requires gasoline to be blended with ethanol. These companies are provided guaranteed business and then a subsidy on top of it…

Rather than allowing the government to pick winners, it is best to let markets decide our future energy sources. Investors are skilled at identifying profitable opportunities in providing energy. They also are able to acknowledge when an idea has failed. The government is not. It is much harder to convince a group of savvy investors that your ideas are worth funding than it is to lobby politicians to earmark billions of dollars for your industry.

This follows an April article by the Center for American Progress where they called for phasing down the tariff on imported ethanol, and recommended that “All countries must take reciprocal action to remove trade restrictions on sustainable biofuels,” which Brazil has already done.

It’s encouraging to see that support for open competition in the renewable fuels market is growing to reach both sides of the aisle. Because when there’s open competition, consumers win.

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