Study: Growing Federal and State Ethanol Subsidies Won't Dampen Prices at the Pump

(Alexandria, VA) -- With Mid-East turmoil, rising demand for energy, and record high gas prices, some politicians view ethanol as a panacea to Americans' energy concerns, but according to a study released today from the 350,000-member National Taxpayers Union (NTU), ethanol is not up to the job. The non-partisan citizen group's analysis predicts that consumers and taxpayers will see few benefits from growing federal subsidies to a 30-year-old industry that has yet to become self-sufficient.

"Despite federal and state subsidies, a guaranteed market that is protected from international competitors, and millions of dollars from private investors, it is abundantly clear that ethanol is not and may never be a truly competitive energy alternative," said study author and NTU Policy Analyst Jeff Dircksen.

Supporters of ethanol, notably Archer Daniels Midland (ADM), have marshaled government backing by pouring millions of dollars into political coffers over the last thirty years. It is estimated that every dollar of ADM ethanol profits costs taxpayers more than $30. Among the study's other key findings:

  • Drastically Higher Prices at the Pump. Dircksen estimates that the additional annual cost of purchasing a blend of 85 percent ethanol and 15 percent gasoline (E85) would be $968.72 in New York (driving a Chrysler Sebring), and $1,570.40 with a Dodge Durango. Even Midwestern consumers inside the "Ethanol Belt" would pay $413.71 in additional fuel costs driving the Durango.
  • Taxpayers Subsidize Ethanol Many Times Over. Not only do consumers pay for ethanol through higher prices at the pump, but they also subsidize the production through tax policies, trade barriers, and government crop payments for corn. Ethanol producers currently receive a 51-cent-a-gallon tax credit for pure ethanol, and taxpayer subsidies amount to over $2 billion annually.
  • Ethanol Not Fuel Efficient. Ethanol is expensive to produce and transport (only through train or truck in the U.S.), and it lacks modern fuel efficiency. It takes 1.4 gallons of E85 to equal the energy content of 1 gallon of gasoline; drivers can expect a 5 to 15 percent drop in fuel economy.

The study also highlighted several long-term risks for taxpayers. Since ethanol is tied to the price of corn, continued overproduction of corn could cause the price to fall, and taxpayers would then be forced to increase subsidy payments to farmers. In addition, a future drop in oil prices would make ethanol even less competitive in the market than it is today, forcing proponents to argue for more federal subsidies.

The author notes that if decades of massive subsidies, forced consumption, high tariffs, and tax incentives can't keep ethanol alive, nothing can. "The [ethanol] industry claims that consumers choose ethanol because it's good for farmers or because it's good for the environment," Dircksen concluded. "Yet, after nearly 30 years of government help and protection, the industry is still not able to meet the test of the marketplace. As politicians look to add crops like sugar to the list of subsidized sources of ethanol, taxpayers can expect to 'invest' more and more in this disappointing technology."

NTU was founded in 1969 to work for lower taxes, smaller government, and economic freedom at all levels. Note: NTU Policy Paper 121, Ethanol: Bumper Crop for Agribusiness, Bitter Harvest for Taxpayers, is available online at