U.S. Rep. Bill Archer (R-Tex.), chairman of the tax-writing House ways and means committee, will seek repeal of the ethanol tax credit in this session of Congress.
He released a General Accounting Office report that said the alcohol fuels tax credit had cost the Highway Trust Fund about $7.1 billion during 1979-95. Archer said it would cost another $2.4 billion during 1997-2000.
The GAO report said the tax credit had neither lowered U.S. dependency on foreign oil nor improved the environment.
The credit allows firms to reduce their income taxes by 54¢ for each gallon of biomass ethanol that they use in their blended gasoline. GAO noted that 95% of U.S. ethanol production is from corn.
The study said that methyl tertiary butyl ether, which is made from natural gas, is blended in gasoline more often than ethanol because it has lower volatility.
Little benefit seen
GAO did not estimate how the alcohol fuels tax credit affects farmers but said the ethanol tax incentives had little effect on the environment.
"If gasoline entirely replaced ethanol, gasoline use would likely increase by no more than 4% in the most ethanol-intensive state. According to the Environmental Protection Agency, even if ethanol use were eliminated, these areas would most likely continue to meet national ambient air standards."
The study also said the tax credit does not significantly reduce oil imports, since ethanol accounts for less than 1% of U.S. motor vehicle fuel consumption. It added that ethanol production cannot be rapidly expanded with existing technologies.
Rep. Archer said, "I have long considered the ethanol subsidy to be a wasteful use of tax dollars. The subsidy has failed to achieve its desired environmental or energy-related intentions while penalizing taxpayers by removing money from our nation's road, bridges, and infrastructure.
"In the years to come, there is no question we shall need more foodstuffs around the world. We are not putting a vital product (corn) to its best use."
Archer praised Reps. John Lewis (D-Ga.) and Phil English (R-Pa.) for introducing a bill to repeal the law.
Archer said his committee would hold a hearing on the bill and seek to pass it. "We have a higher chance of success than we did in 1995. We hope the Senate will see the light and do the right thing too."
Industry views
A coalition of associations, including the American Petroleum Institute and the National Petroleum Refiners Association, said the ethanol "subsidy has become a flagrant example of a good intention gone bad.
"We are also concerned that its continuation will drain our ability to fund highway improvements needed to maintain our crumbling infrastructure."
But the Renewable Fuels Association said the GAO report disregarded the benefits of past ethanol production and use.
The National Corn Growers Association said, "We are going to do the best we can to maintain the exemption as it is until 2000."
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