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Canceling Ethanol Subsidies Saves More Money than Freezing Public Worker Pay

The UN conference on climate change kicked off in Cancun with virtually no hope for a resolution mutually agreeable to all nations. The heady days of a new treaty to follow Kyoto are gone. They’ve shifted to cutting industrial chemicals, soot and methane, instead of carbon emissions. Whatever progress can be made stateside will happen with regional climate pacts in the states. Utilities may switch to natural gas if stymied by high costs of retrofitting their coal-fired plants to comply with EPA rules, but that’s about all the movement we’ll see there. These are not happy days for climate hawks.

However, out of this despair has emerged a transpartisan coalition on an issue which is more focused on the federal budget, but has relevance for the climate debate. A bipartisan group of Senators and associated advocates would like to see ethanol subsidies expire.

In a letter Monday to congressional leaders, Political Action, FreedomWorks, and more than four dozen groups called on Congress to let the ethanol tax credit expire at the end of the year.

“At a time of spiraling deficits, we do not believe Congress should continue subsidizing gasoline refiners for something that they are already required to do” under federal law, according to the letter, which was also signed by the Sierra Club, the American Conservative Union, and the Grocery Manufacturers Association.

In their letter, Sens. Feinstein and Coburn – joined by 15 other senators in both parties, including Republican Senate Whip Jon Kyl of Arizona – denounce the tax credit as “fiscally indefensible.” The senators also call for dropping the 54-cent-per-gallon tariff on ethanol imports, saying such policies “make our country more dependent on foreign oil.”

Greg Sargent has more on the letter. Kyl, John McCain, Susan Collins, Richard Burr and Mike Enzi signed it. And because you’re just allowing subsidies to expire, you don’t actually need to take a tough vote here.

President Obama did not mention ethanol subsidies as one of the priorities in his meeting with Congressional leaders. And Energy Secretary Steven Chu yesterday, in a speech calling for new energy investment and more competition with China, called first-generation ethanol from corn “not an ideal transportation fuel.” He prefers the next-gen cellulosic-based ethanol fuels.

Obviously, dealing with ethanol brings up a host of issues, especially for aspiring Presidential candidates who want to win in Iowa. But let’s just look at this in one particular way. The President’s two-year pay freeze for federal workers is estimated to save the government around $60 billion dollars in the ten-year budget window. How much would canceling the ethanol subsidies save? According to the GAO, the subsidies cost the government $4 billion in 2008 and would project to cost $6.75 billion by 2015. If you put that out to the ten year budget window, you get at least as much, if not more, savings from canceling ethanol subsidies as you do from the worker pay freeze. And in the process, you stop rewarding an industry making a bad transportation fuel, actually cut greenhouse gas emissions, lower food prices, enthuse some depressed environmentalists and give some purchasing power back to federal employees in the process.

Win-win-win-win! Why are we trying to cut worker pay when we can kill bad subsidies to industry at the same price?

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David Dayen

David Dayen