Why Repealing/Reducing the U.S. Tariff on Imported Ethanol is a Bad Idea
By R. Brown, Web Exclusive Posted Dec. 29, 2008
What does Sen. John McCain, R-AZ; Sen. Jeff Bingaman, D-NM; Sen. Diane Feinstein, D-CA; and Sen. Judd Gregg, R-NH, all have in common? They all support a repeal or reduction of the U.S. tariff on imported ethanol. For those not familiar with this tariff, it was legislated by the U.S. congress in the 1980s to protect domestic farmers and encourage private investment in ethanol research, production, and distribution efforts.
At face value, the cause of the senators mentioned above may appear agreeable; after all, we all want cheap energy! But take a look again, there are many reasons why removing, or even reducing the import tariff is a bad idea especially now when the ethanol industry is doing so poorly.
Advocates of the import-ethanol-tariff repeal argue we need access to cheap and more environmentally friendly ethanol but this same argument has been used for over half a century in support of crude oil import to the U.S. and we all know where this strategy has gotten the U.S! Arguments for cheap ethanol regardless of source ignore one crucial aspect of our current energy policy-“Energy Independence!” Energy professionals in academia, government, and the private policy sector largely agree our energy policy moving forward must focus on domestic sources as the uncertainties and risks associated with cheap foreign energy disproportionately outweigh perceived benefits.
Moreover, the American market is saturated with ethanol due to excessive production and the current 10% cap on gasoline/ethanol blends. As a result, cheaper imported ethanol will have little or no impact on gasoline prices.
Most U.S. imported ethanol come from Brazil, the world’s largest exporter of ethanol. There are several advantages to Brazilian sugarcane-ethanol. It is cheaper and arguably more environmentally benign than the largely defaced U.S. corn ethanol-wrongly blamed for rising food prices. In addition, diplomatic relations between Brazil and the U.S. is healthy. But then again, the U.S. had a better relationship with Venezuela, our 2nd largest crude oil supplier, years ago.
When it comes to cleaner ethanol, there has been an upsurge of investments and interest in second and third generation biofuels such as cellulosic ethanol and algae biofuels. A repeal or reduction of the import tariff will send a negative message to investors about long-term U.S. commitment to renewable energy consequently choking R&D and venture capital investments and catalyzing a reversion to the last three decades of failed energy policies.
U.S. energy policy must focus on domestic sources for the benefit of national security and economic growth. Short term demand for cheap energy must be tromped by our long term goal for energy independence.