From the New York Times comes a story describing the end of the ethanol tax credit in the US.
The tax break, created more than 30 years ago, had long seemed untouchable. But in the last year, during which Congress was preoccupied with deficits and debt, it became a symbol of corporate welfare. Fiscal conservatives joined liberal environmentalists to kill it, with help from a diverse coalition of outside groups.
In the United States, most ethanol is produced from corn. The demise of the subsidy is all the more remarkable because it comes at the peak of the political season in Iowa, where corn is king.
Is it really all that remarkable?
The higher prices have “created additional income for corn producers” but also appear to have increased costs to meat and poultry producers, big food companies, grocery shoppers and federal food programs, the Government Accountability Office said.
While the poultry industry is dominated by large-scale producers, cattle and pigs are grown by your typical farmer. These farmers also grow acres and acres of corn, so the corn producers and meat producers are largely the same group. The ethanol supports, therefore, have simultaneously increased farmer income and costs. My guess is that the average farmer's costs have increased more than his revenues from these supports.
While this is a step in the right direction, there are still two more types of government support propping up the ethanol industry: the tariff on imported ethanol and ethanol mandates. As I've written before, a product that needs this much government support probably isn't all it's cracked up to be in the first place. Let domestic ethanol, foreign ethanol, and plain old petrol compete on the same plane, and let consumers make their decisions about which type to use.
Update: Doug Mataconis has further thoughts here.
Update: John LaPlante writes...
The ethanol industry says that rising gasoline prices have helped make its product competitive with regular gasoline. Score one for standard economic theory, which said long ago that ethanol could become more attractive, without government-imposed distortions, if the price of petroleum rose high enough.