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The end of an eraThe events of the 1970s--large budget deficits, heightened concerns of the environment, and geopolitical battles resulting in oil embargos and energy crises--lead Congress enact policies to advance alternative fuels, increase energy efficiency and promote domestic energy production. Now, some 30-plus years later, Congress has decided some good things do in fact come to an end. As of Jan. 1, the various tax credits and other incentives for producing, blending and selling ethanol are no longer in effect. Over the past few years, the most commonly used credit was the Volumetric Ethanol Excise Tax Credit (VEETC), a 45 cent credit for every gallon of pure ethanol blended into gasoline. Since the standard for most fuel stations is to sell gasoline with 10 percent ethanol, the end of the subsidy could increase the price at the pump 4.5 cents per gallon. Also expiring is the 54 cents-per-gallon tariff charged to foreign countries for all ethanol imported to the United States. Why does this matter you ask? Last year, for the first time in history, more corn grown in America ended up at an ethanol plant than it did at a feedlot, dairy farm, poultry production house, or farrowing house. USDA estimates in 2012 more than 30 percent of the corn grown domestically will be used for ethanol and ethanol by-products. Additionally, a recent report by the Center for Agricultural and Rural Development at Iowa State claims corn prices, since 2005, would have averaged only 4 percent less without the ethanol subsidies and tariff. We can save the food verses fuel debate for another time, but the fact is nearly 70 percent of total livestock and poultry production costs in any given year is directly attributed to the price of feed. And corn accounts for nearly 90 percent of grains used for feed. If the academic and government studies are correct, Americans could be paying more for fuel and farmers could be receiving less for every bushel they produce. It will take some time for the markets to flush out the reality that ethanol subsidies have run their course, but it should not come as a major shock. Last June, the Senate approved a measure by a vote of 73-27 to eliminate the VEETC immediately. However, because the House never voted on the resolution and the existing law stated a sunset date of Dec. 31, 2011, most political observers, ethanol businesses and commodity market watchers knew what to expect and began to prepare. Ethanol tax credits cost the federal government just over $5.7 billion in 2011. During the ethanol boom of the 1970s and again in the 2000s, an argument could be made that the tax credit helped create jobs constructing and operating the ethanol plant; improved highway, railroad and other infrastructure, revitalized rural communities; and provided another delivery point for farmers. Congress has reversed course on subsiding ethanol while still dealing with many of the same issues they were 30 years ago--an even larger budget deficit, a renewed public perception on environmental protection, and the never ending and always revolving geopolitical battles. Time will tell if the ethanol industry is prosperous enough to stand on their own--without government support.
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