Dick Lugar's Energy Subsidies Are Special Interest Giveaways

It's a good day to be in the biofuels industry, but hard times for those paying at the pump.

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Tom Pyle is the president of the Institute for Energy Research

On May 8, Indiana's six-term senator, Dick Lugar, was handily defeated in the Hoosier state's Republican primary. To put this stunning defeat in context, consider the role Senator Lugar played in this year's boondoggle-laden farm bill.

The Senate Committee on Agriculture recently approved a new farm bill. This version provides $480 billion in wasteful energy subsidies similar to those in past farm bills. Proponents of the 2012-2017 measure tout the fact that it will cut current farm bill spending levels by $23 billion. The committee, however, deserves no praise from those truly interested in bringing fiscal discipline to Washington.

One key part of the farm bill is the $800 million Lugar-Conrad amendment. This amendment provides various energy subsidies that are nothing more than special interest giveaways that profit the few at the expense of average Americans.

[See a slide show of the 10 states that use the most energy per capita.]

The Lugar-Conrad amendment includes $193 million for the troubled Biomass Crop Assistance Program. With the program, the taxpayer provides up to 50 percent of a farmer's costs to plant and use biomass crops. This program was cited by the U.S. Department of Agriculture Office of the Inspector General in 2010 for having wide ranging problems with unequal or improper payments to participants, as well as issues with the inconsistent administration of program's provisions. 

The Lugar-Conrad amendment also extends $241 million in taxpayer dollars for the Rural Energy for America Program. This program provides grants and loans for farms to install renewable and energy efficient equipment at their operations. This subsidy is akin to the Obama stimulus bill's section 1603 program, which provided the same type of financing to Solyndra prior to its bankruptcy filing.

Most regrettably, the Lugar-Conrad amendment mandates that the vast majority of the bill's energy spending—about $810 million—is mandatory for the five-year period. That means that in later years, Congress would have to pass a new law to reduce spending levels to bring spending in line with the realities we will face down the road. As history has shown, Congress has a lousy track record when it comes to reducing spending.

[See a collection of political cartoons on the budget and deficit.]

The committee's passage of the farm bill is surely welcome news to those who have profited from its excesses in the past, but who, then, is on the side of the consumer? Although much of the farm bill's energy spending is dedicated toward subsidizing ethanol, as a transportation fuel, ethanol is about 30 percent less efficient than gasoline. For this reason, AAA's Daily Fuel Gauge report for May 9 shows that, on an energy-output basis, fuel blends containing 15 percent ethanol are about 55 cents more expensive per gallon than the nationwide average for regular grade gasoline. Nonetheless, the farm bill would require taxpayers to subsidize the production of fuel that is more expensive for less mileage per gallon, while the Environmental Protection Agency has a mandate in place that at least 10 percent of our fuel has to come from renewable sources (i.e. ethanol). It's a good day to be in the biofuels industry, but hard times for those paying at the pump.

Biofuels have been propped up in every conceivable way, from direct subsidies, to tariffs on imports, to mandates that force us to use it. But with the exception of ethanol made from corn, which has received billions, biofuels remain far too expensive for commercial use. For example, Congress set a target that we would produce and use 500 million gallons of cellulosic ethanol in 2012. Yet when it became clear that the target could not be met, the Environmental Protection Agency had to step in and lower the goal to 8.6 million gallons—97 percent less than the original goal—and it still remains unclear if even a drop of cellulosic ethanol was blended into fuel last year.

[See a collection of political cartoons on energy policy.]

Senator Lugar lost his primary election because he has lost touch with the people of Indiana. The economy continues to sputter and our deficit grows, but the response from Washington is to create even more subsidies that will have to be paid for by even higher taxes down the road. The farm bill will make energy more expensive and force the America taxpayer to pay higher taxes to support massive subsidies for agri-businesses. It's time to eliminate these wasteful energy provisions.

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