That falling ball in Times Square didn't just signal the end of 2011, it was also the death knell for thirty years of ethanol subsidies. That in turn could signal an abrupt rise in prices at the pump.

By failing to vote in an extension, Congress allowed the $0.45 per gallon production subsidy to expire with the start of 2012. With an annual payout of $6 billion, the subsidy was a popular target for politicians looking to show their dedication to reducing the deficit.

However, just because the subsidy is going away doesn't mean that ethanol is going away. Most gasoline sold in the United States contains at least 10 percent ethanol, and that's not changing. In fact, targets for both corn-based and next-generation biofuels have been increased. Still, removing the 45-cent subsidy could mean a 4.5-cent increase in cost for gasoline suppliers, and perhaps an even sharper rise for what consumers pay at the pump. Logically, price increases are expected to be even higher for fuels that contain larger percentages of ethanol, like E85.

In addition to allowing subsidies on U.S.-made ethanol to lapse, Congress has dropped barriers to imported ethanol. Previously, ethanol from Brazil faced a tariff of $0.54 per gallon. Eliminating this charge could mean that some corn-based ethanol used in U.S. gas ends up being replaced by sugarcane-based ethanol from Brazil. What this will ultimately mean to consumers is not yet clear.


I'm reporting this comment as:

Reported comments and users are reviewed by Autoblog staff 24 hours a day, seven days a week to determine whether they violate Community Guideline. Accounts are penalized for Community Guidelines violations and serious or repeated violations can lead to account termination.


    • 1 Second Ago
  • 45 Comments
      Marco Polo
      • 3 Years Ago
      @ EVsuperHero Hey, I think you have discovered a weird, rare creature! A Bunker Oil Enthusiast! Albeit an anonymous one. A sort of gollum of transport energy...
      2 Wheeled Menace
      • 3 Years Ago
      Basically we are outsourcing our ethanol production and importing the stuff instead by this move.. Who knows - Brazil can pump out sugarcane ethanol like crazy and the stuff might be cheaper, all things said and done. They run a hell of a lot of ethanol out there and can probably do a much better job.
        2 Wheeled Menace
        • 3 Years Ago
        @2 Wheeled Menace
        Yeah yeah Dave R, you win :P http://en.wikipedia.org/wiki/Ethanol_fuel_in_Brazil#Exports Considering that our fuel is only currently 10% ethanol, the impact will be minor.
        EZEE
        • 3 Years Ago
        @2 Wheeled Menace
        Corn and sugar cane are two different things. Are they using the corn for ethanol, or for food and feedstock? Also, they may have a more highly developed ethanol program. Some of the oil producers import gasoline since they do not have refining capacity. Iran is one such country.
        Dave R
        • 3 Years Ago
        @2 Wheeled Menace
        2 seconds of research on the topic will quickly reveal that Brazil is actually importing corn ethanol from the USA to satisfy internal demand, not the other way around. This situation is expected to last at least a couple years. Gas prices might go up a nickel/gallon in response to this subsidy going away. Pretty much lost in the noise of gas price fluctuations. Crude is up 4% today. At $3.50 / gallon a 4% rise in crude will increase gas prices about $0.10/gallon.
      EZEE
      • 3 Years Ago
      I just enjoy reading this stuff so much...
      PR
      • 3 Years Ago
      Two comments: 1) Is it ONLY NOW that folks are finally thinking through the actual impact of a tax credit going away that they've been debating for years??? Seriously? Stunning lack of fore-thought. 2) Thinking that the price of gasoline is a sum of expenses shows a VERY weak understanding of Capitalism and the Free Market, the commodity market, and how pricing works. The price of gasoline at the pump is determined by the perceived value of gasoline. This is just like Gold, where the value of Gold is not the sum of the costs to mine gold. And corn, where corn futures are not traded on the sum of costs for farmers to grow corn, but the value that corn buyers are willing to pay. This is the reality of capitalism, and double so for anything that is traded as a commodity (like oil and gold and corn) where 3rd parties speculate for profits in the same market where we get things we have to consume on a daily basis. Gasoline has equal chances of going down as they have of going up as this tax credit expires, and these companies are exposed to higher potential taxes liabilities. The actual tax impact will only show up in their bottom line quarterly, not in every tanker truck they send out to gas stations, and I'm sure there will be more tax games played now to shift around tax liabilities. Games like shifting profits around between off-shore shell companies to change where taxable profits are booked. Even if you take the tax credit at face value, as if oil companies had zero ability to shift around their tax liabilities, not all "E10" gasoline actually contains exactly 10% ethanol. It might be E7 or even E5. The E10 label on the pump only indicates the MAXIMUM ethanol content, not the actual ethanol content. Any attempt to just do some division based upon the .45 cent tax credit to say that the price will go up by X number of cents is utterly false. The price of gasoline will always be based primarily on the perceived value of gasoline. This is exactly what allows gas prices to fluxuate with as much volitility as it has fluxuated in the last years and decades.
        EZEE
        • 3 Years Ago
        @PR
        I know you hate it when I do this...but.... Bravo! Hear Hear! (I even learned it is 'hear hear' and not 'here here' on ABG). Totally speechless.... Again, I know you don't like it when I agree, but, that was fantastic. (PR bows as the crowd goes wild...flowers raining down onto the stage, while men offer up their daughters).
      Dave D
      • 3 Years Ago
      I believe ethanol makes up 8% of the avg gallon of gas sold in the US. So if you assumed the entire $0.45 was passed on to consumers then the average gallon of gas would go up by .08* .45 = $0.036 or 3.6 cents a gallon. Also, you have to remember that it will not go up by exactly 45 cents, more likely about half that as demand is never perfectly inelastic. So the price of gas might go from ~$4.00 a gallon to ~$4.02 a gallon? So what? You think that will change anyone's driving habits? They play with the price as much as 10 cents a day in some areas I've been watching as I drive around lately. And if this is one small step to more truly reflect the actual price of what we put in our cars, I say "good". Now, let's start eliminating all the accelerated depreciation crap the oil industry gets on their equipment. Then let's get rid of their next one...then their next tax break, then their next tax break. One small step at a time.
        lne937s
        • 3 Years Ago
        @Dave D
        Ethanol demand is pretty inelastic, as the amount of ethanol blended into gasoline is still mandated by the government. Regardless of the subsidy, supply and demand isn't the reason ethanol makes up almost 10% of gasoline. Ethanol consumption is actually going to go up due to the mandate, and ethanol producers are likely to still be making money since the subsidy wasn't paid to them. As the subsidy impacts gasoline blenders and doesn't include transportation and retail markups, it is likely to increase gasoline prices by more than $.05 per gallon... That said, the government shouldn't be subsizing gasoline or ethanol, and ~5 cents will barely be noticed. While we are at it, our roads and highways could really use another $.05+ in gas taxes to cover some of the budget shortfall.
        Dave D
        • 3 Years Ago
        @Dave D
        EVNerdGene & Marco Polo, I was too vague with my statement. I was referring to the accelerated depreciation that the oil companies get that other industries do not. For example, from my earlier post on this subject: (Marco, I'm particularly interested in your views of these two links as we've debated this before and I want to know your view of these...I'm honestly curious, not forming an opinion yet as I'm sure they are slanted just like anything else) "Percentage depletion ($11.2 billion over 10 years): Companies are generally allowed to deduct the costs of an investment over the term of that investment’s useful life. But oil companies get to use a special method for calculating their deductions called “percentage depletion.” Instead of deducting the costs of an oil or gas well as its value declines, oil companies are allowed to deduct a flat percentage of the income they derive from it. Because the deductions are based on revenues, not costs, the subsidy actually increases at times when prices are high, which of course is when oil companies enjoy their greatest profits.[2]" and many others, read this page: http://www.americanprogress.org/issues/2011/05/big_oil_tax_breaks.html Also see other items on this link: http://www.citizen.org/cmep/article_redirect.cfm?ID=13980
          Marco Polo
          • 3 Years Ago
          @Dave D
          @Dave D Sorry, because I spend much of my year in Australia, replies are often late by your time. Tax regulation is a prerogative of the Governments. Like everything taxes need constant review.What was appropriate in one decade may no longer be applicable 10 years longer. But governments must be very careful of the impact on long term industries. Often governments make a deal with an oil company to develop a very risky, low margin, low yield field and agree to allow a percentage to be paid directly to the state in oil, rather than cash. In this way each of the participants shares in the profits, but the oil company takes all the risk. The Federal government saves the costs of developing and maintaining services to a remote or impoverished section of the country, the State benefits from any increases in the price of oil, and can reliably calculate it's oil supply. The Oil company after many years of losses, finally gets the field operational and develops oil extraction technologies which make the field more profitable than was originally envisaged. This is a reward for risk. Why should the government change the rules? Both the articles you provide, are hardly from unbiased publications! Hoever, I read both and athough the authors were biased, they did attempt to provide some balance. Thank you for citing them. Oil company profits are not governed by the pump price! Even though it sounds a lot, a one billion dollar per year deduction to an industry as huge as the Oil industry is really insignificant. The reason the government, not the industry, decided on 'percentage depletion', was for a number of reasons, one was to stop oil companies mis-reporting 'depletion', another reason is that the government retains the right to regulation oil flow production. Some forgotten factors are that Oil companies must hold huge cash reserves (subject to currency fluctuations) against the various risk and uncontrollable mishaps of the oil business that can prove enormously expensive. Like farming, this years high profit, may not be so great if the previous three years losses are taken into account.
          EVnerdGene
          • 3 Years Ago
          @Dave D
          now you are sounding more rational. depletion credits? common when dealing with any natural resource - dastardly oil, dastardly coal, lumber, copper mines, gold mines, up uranus mines I hardly ever listen to any news on TV. But when I listen to Fox I think; yeah, fair and balance, and a little too wimpy to keep from offending anyone.
          Dave D
          • 3 Years Ago
          @Dave D
          Thanks Marco. I assume the authors were biased based on the who they are and the groups they write for as well. That doesn't mean they don't have some correct facts, but you can slant even a fact to make it seem like more than it is. I miss the days of news organizations that actually just reported what happened. Over here we have Fox News who are disgusting on the right, and MSNBC who are disgusting on the left. They are two propaganda machines who pretend to be news organizations. I'm a life long Republican and always used to vote that way. But I've become very frustrated by the way the Republican party has become a slash and burn for profits group. Your explanation about why oil companies have special tax breaks makes sense. But I don't agree with continuing these special tax codes, it's time to roll them back to the same tax codes that every industry lives with. They make plenty of profit and can even cover the costs of their big spills out of a quarter's profits. And for EVnerdGene, I don't want Bank of America or GE or anyone else getting special treatment either. I'd be more than happy to do away with all tax breaks for everyone, including myself. I don't need any more tax breaks for my long term capital gains so I'm not on board with my friends and peers who think we do. It's money I made, just like everyone else makes money. Why am I special and get to pay 15% on that (with no social security or FICA either) when middle class people pay those taxes on every penny they make? A flat tax rate would be very nice....except it hurts the poor disproportionately so it sounds great but it's not fair in reality. And some people may not care about being fair....but when you hurt more people who are already borderline poor, you just create even more poor people dragging the system down. I'm more in favor of lowering the marginal rates for everyone and getting rid of all the deductions as they only favor groups with the money to lobby for them.
        EVnerdGene
        • 3 Years Ago
        @Dave D
        "Now, let's start eliminating all the accelerated depreciation crap the oil industry gets on their equipment" Are you suggesting we do away with depreciation allowances for the oil industry only ? Wouldn't that be discriminating ?
        Marco Polo
        • 3 Years Ago
        @Dave D
        @Dave D "Now, let's start eliminating all the accelerated depreciation crap the oil industry gets on their equipment. Then let's get rid of their next one...then their next tax break, then their next tax break. One small step at a time." Do you think these things through? I know they sound great and all the anti-Oil company cheer squad will love you, but do you actually realise the results of what you are proposing? Apart from the obviously dangerous precedent of discriminating against one industry on moral or political grounds. Your concept would also be ineffective. The oil company simply passes on the cost to the consumer, the consumer stops buying domestically produced goods, unemployment escalates, older less efficient cars are retained, America become less productive and poorer as investment capital moves off-shore, and the oil industry moves out of US oil production to more profitable overseas fields. The Oil companies have vast reserves of cash, but the government doesn't. As the taxes (and royalties) paid by Oil companies to the State and Federal governments dry up, creating a bigger burden on the tax-payer, and the welfare budget has to increase. Foreign investment also dries up, and America can no longer pay the interest on it's debt. As interest rates rise, the nation plunges deeply into a bitter depression. Oh, and the worst outcome is for about 78% of all US pensioners and retirees, since that income is heavily dependant on Oil company profits. The hardest hit, will be the poor. Next is the middle-class taxpayer. The super-rich? They will just move their wealth off-shore. But, what positive effect has been achieved? None, because alternate energy programs can no longer be funded. But, the US will still buy oil, (because no viable alternative is available) just on less favourable terms. Economies are a lot more complex than just demonising a perceived 'bad boy' . You don't shoot the horse you are riding, until you have a replacement!
          lne937s
          • 3 Years Ago
          @Marco Polo
          Major oil companies are paying little to nothing in taxes. The drilling in US waters, using US crews pumping oil owned by the US taxpayers typically do not generate tax revenue on any associated profits as they claim the revenue is from the tax haven the drilling rig is registered in. They shift around their money so corporate taxes are virtually eliminated. Oil companies are more of an expense to US taxpayers than a source of revenue, beyond the gas taxes consumers pay at the pump. The oil industry has been given preferrential treatment in the US for a long time. In the long run, we will still extract the oil in this country without subsides, but just do it when oil is worth more money (global oil demand isn't going to go down any time soon). Why not let other countries deplete their oil reserves while oil is still relatively cheap? With the reduced tax breaks, the US will actually benefit more from delayed drilling in the long run. It would be better to subsidize future energy sources, rather than accellerating the depletion of domestic petroleum. Pension investment isn't a justification to circumvent sound economic principles-- a lot of pension plans lost millions when automakers went bankrupt too. Pension plans can change their investment mixes. The US can borrow money for less than inflation, and we pay relatively little in taxes. Unless created by political shortsightedness like the debt limit debate last summer, there is very little chance we would not be able to pay interest on the debt.
          EVnerdGene
          • 3 Years Ago
          @Marco Polo
          Well said Marco @Ine937s Your first sentence shows your ignorance. The rest of your thesis is no better. @Dave D Sorry, the oil industry gets no special treatment. Depreciation, depletion, job credits, ad nauseum are all legit deductions and credits that all companies get, like Bank of America (twice the profit of XOM) a few years ago). Want to do away with the deductions and credits? All for it. more @Dave D you are reading some genuine crap on crap websites indoctrination
      EVnerdGene
      • 3 Years Ago
      What's that, about $6 Billion a year we don't have to borrow from the chinese to keep our tanks filled. Pay for your own damn bad habits - as you go.
      Spec
      • 3 Years Ago
      Sounds good to me.
      EVSUPERHERO
      • 3 Years Ago
      Whether we are exporting it, or importing it, it sure do keep those big ships that burn bunker fuel busy. A nasty pollution foot print according to Marco.
      PR
      • 3 Years Ago
      Thanks. This same analysis is exactly why Drill-Baby-Drill can never bring down the price of oil in the United States, despite what the right-wing says. All of the same analysis I just used leads to the same conclusion that the price of gasoline will always be based primarily on the perceived value of gasoline. The only thing more US drilling in exotic places within the United States will do is shuffle around global oil production like chairs on the Titantic. And since we now export so much gasoline, more US drilled oil instead of foreign oil being run through US refineries will never impact the supply/demand market for the US. Refined gas is now fungible due to exports/imports, so the price of refined gas cannot be brought down by increasing US oil drilling, or by increasing how much gasoline is refined in the US. Instead, the price of gasoline is be based primarily on the perceived value of gasoline, not on how much oil we drill here in the US.
      Guillaume Séguin
      • 3 Years Ago
      In Ireland they stopped the subsidies of Ethanol -for obvious budget reasons- in December 2010, with immediate effect. It would have raise the price over the price of unleaded (95 here) so distributors just stopped selling it and in 2 months time it was over. A bit frustrating but I still put Ethanol when i drive abroad. Weird thing is that government here 'forgot' (?) to stop the tax breaks on the purchase of a Ethanol capable cars. So you can still buy these cars brand new but have to put unleaded in it. Crazy world.
      • 3 Years Ago
      So, a lobbyist-loved, corporate pocket-lining boondoggle is going away and people are going to have to pay somewhat closer to the real cost of fuel for their vehicles, which will spur greater conservation and wiser consumer choice. That, folks, is the market working at its best.
      Marco Polo
      • 3 Years Ago
      @PR "The price of gasoline at the pump is determined by the perceived value of gasoline" Interesting viewpoint, with some considerable merit. However, supply and demand does play a fundamental role in oil prices, since speculation is based on perceived shortages or oversupply. If tomorrow a new Saudi Arabian oil field was discovered in Ezee's backyard BBQ pit, in Florida, (and was fully operational) the price of US gasoline, would drop dramatically. (unlike Ezee, who would rise dramatically). In the same way as the development of a more economic bio-gasoline feedstock would affect the price of gasoline, as the cost of production would decrease. This would in turn trigger a speculative response. Shell is not going to remain selling gasoline at $4 per gal, when Chevron offers a sustainable pump price of $3 per gal! Production costs are a very large part of the price the motorist pays. As oil depletion bites deeper, extraction technology becomes more expensive and risky. These factors drive up the price of oil as a commodity, and the tax component rises with the base price if assessed on a % basis.
    • Load More Comments