Letters

July 18, 2005
Judson Jaffe's article titled �US should reconsider fuel ethanol's excise tax exemption" is 'spot on,' as the Brits say (OGJ, June 13, 2005, p. 26). The 51¢/gal subsidy for the production of ethanol amounts to over $21/bbl. .

Ethanol subsidy

Judson Jaffe's article titled "US should reconsider fuel ethanol's excise tax exemption" is 'spot on,' as the Brits say (OGJ, June 13, 2005, p. 26). The 51¢/gal subsidy for the production of ethanol amounts to over $21/bbl. Ethanol producers are fond of reminding people how they are reducing America's dependence on oil imports. Imagine what could be done to reduce America's dependence on foreign oil if it were possible to extend this subsidy to other domestic energy programs.

Jaffe points out that the cost to America of its ethanol subsidy was nearly $2 billion in 2004 and is increasing rapidly as new plants come on stream. Crude oil, once benchmarked at $25/bbl, has passed through $50/bbl and shows little sign of retreating. Gasoline prices have responded accordingly. With ethanol production costs running about $1/gal and with wholesale gasoline prices in the range of $1.50/gal, there is ample margin for the ethanol producer to compete even without a government subsidy. At the present, ethanol producers live in an entrepreneur 's paradise where their product is heavily subsidized, and its use is mandated by law. In the words of George and Ira Gershwin in I Got Rhythm, "Who could ask for anything more?"

Thirty years ago the oil industry lost its 27 1/2% depletion allowance. Once generous, long-standing tobacco subsidies have been axed. The ethanol subsidy has served its purpose in assisting a fledgling industry to come of age and meet competition. This subsidy is not an entitlement in perpetuity; times change, and it should be withdrawn recognizing that gasoline prices have risen to the point where a subsidy is no longer required. When America is beset with budget shortfalls and needs every dollar it can muster, there is no justification for continuing to subsidize an economically competitive industry.
Thomas Wyman
Palo Alto, Calif.