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BP slated to claim $600 million in ethanol tax credits this year

By Climate Guest Contributor  

"BP slated to claim $600 million in ethanol tax credits this year"

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There are many reasons to dislike corn ethanol (see “The Fuel on the Hill “” The Corn Supremacy” and “More corn ethanol = Bigger Gulf dead zone” and links below).  Wonk Room has one more reason in this cross-post

Yesterady, I [Pat Garofalo] pointed to a Stateline report about state government struggling to cut wasteful tax subsidies for corporations, even when they are faced with billions in budget shortfalls. And the federal government has a similar problem with promulgating tax credits that go to either mature industries that don’t need the help or wind up benefiting parties other than those intended.

For instance, paper companies will receive $6.6 billion this year in credits meant to discourage use of fossil fuels. But to qualify for this boondoggle, these companies will actually add diesel fuel to a fuel mix that is already carbon-free, “following the letter of the law while violating its spirit.”

In that vein, BP, the oil company responsible for the ongoing gusher in the Gulf of Mexico, is slated to be one of the largest beneficiaries of tax credits meant to encourage ethanol use:

BP could stand to reap federal tax credits approaching $600 million this year for blending gasoline with corn-based ethanol, making the British oil and gas giant one of the largest beneficiaries of the 45 cents-per-gallon ethanol incentive”¦A common misconception is that it’s the ethanol producer receiving the direct benefit, when it’s really the oil companies. “That’s the guy behind the curtain,” said one energy lobbyist. He said BP might be the largest ethanol credit beneficiary by virtue of a heavy Midwest presence, and noted BP was among the first companies to support the ethanol mandate.

BP is the fourth-largest U.S. ethanol blender, behind Valero Energy, ConocoPhillips and Exxon Mobil, and it’s worth asking whether the movement toward a green economy is at all aided by sending free money to oil companies for mixing some ethanol into their blend. “Is it actually promoting the environment’s health? Is the subsidy making a difference, and for whom?” asked Rep. Earl Blumenauer (D-OR).

Indeed, these tax credits for the oil industry, which reaps record profits year after year, should be very closely examined, particularly since many of them contribute to the country’s reliance on oil by making it artificially cheaper to look for and extract. There are currently nine different federal subsidies given to the oil industry, and taxpayers would save $45 billion if they were all cut. But, as CAP’s Sima Gandhi pointed out, making such cuts would require Congress “to overcome lobbyist arguments that killing subsidies will harm the economy”:

Profitable and powerful oil companies, such as BP and ExxonMobil, pay lobbyists millions of dollars to scare lawmakers into believing that ending subsidies to oil companies will wreak havoc on the American economy. These arguments are advanced by trade organizations such as the American Petroleum Institute, and they suggest that eliminating subsidies “could mean less U.S. energy production, fewer American jobs,” and higher oil prices. The evidence suggests otherwise.

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3 Responses to BP slated to claim $600 million in ethanol tax credits this year

  1. CP says:

    “For instance, paper companies will receive $6.6 billion this year in credits meant to discourage use of fossil fuels. But to qualify for this boondoggle, these companies will actually add diesel fuel to a fuel mix that is already carbon-free, “following the letter of the law while violating its spirit.””

    Very happy to see you point this out. A couple of things, however.

    1. Paper companies were taking advantage of this “black-liquor loophole,” however it was an unforeseen loophole and shouldn’t reflect on the spirit or purpose of the credit. I’m not convinced the credit itself is wasteful (I do think there are better incentives than subsidies, but until we get a carbon tax…); it’s less of a wasteful subsidy and more a situation where an industry was able to find a loophole to take advantage of. This was very well known, and the paper industry was very aware that this was unpopular and put a bulls eye on them as it was an bail out to the paper industry that nobody approved of. This leads us to the next point…

    2. The loophole was (or should have been) shut down. The Senate Finance and House Ways & Means committee saw this loophole as an easy pick as a revenue offset. It was initially supposed to be shut down to offset the cost of other tax credit extensions, but eventually was used to offset the cost of health care.

    I can’t get anything from the Bloomberg link you posted that referenced the 6.6 Billion the paper companies were going to get, so I can’t verify what’s going on, but as far as I know, that loophole was shut down to help pay for healthcare.

  2. Mark Shapiro says:

    Are any free-market economists out there?

    Ending subsidies is about the toughest thing a politician can do. Economists and free-market proponents everywhere should be supporting these nascent efforts to eliminate subsidies. Especially these destructive subsidies.

  3. Lars smith says:

    It is simple. They can cut the 45 cents a galon which raises the price 45 cents a galon. All people would stop paying a 45 cent premium for ethanol blend.