February 1, 2007

Subsidizing Ethanol

Tennessee Gov. Phil Bredesen's budget for the 2007-08 fiscal year will include a proposal to spend $72.6 million of taxpayers' money to subsidize construction of an ethanol plant, a university research program into biofuels and a network of alternative-fuel filling stations along Tennessee's highways, reports today's Tennessean. Last week at the Ecotality Blog I reported on legislation filed by state Sen. Rosalind Kurita that would fund the ethanol plant and build it at the University of Tennessee as part of a "Biomass Research Complex" and establish a research program in the development of switchgrass as an alternative fuel. Switchgrass is considered a rising alternative to corn in the production of ethanol, a rising alternative to gasoline. If funded, UT would build an ethanol plant capable of producing five million gallons of ethanol per year.

Now, I'm all for university research into alternative energy, but I have some questions about Bredesen's plan to subsidize construction of "a network of alternative-fuel filling stations along Tennessee's highways." Here's a big question: Will Bredesen's proposal put the state in direct - and subsidy-advantaged - competition with the hundreds of fuel filling stations already in business across Tennessee? Would it not make more sense - and cost taxpayers less - to simply offer the operators of existing filling stations a reduction in their corporate business taxes if they install alternative-fuel pumps - and also give motorists an incentive to use the new bio-fuel by taxing it less than gasoline?

With the rapid growth of the ethanol industry across the country right now, and the influx of venture capital into alternative-energy businesses, would it not make the most sense for the legislature simply to make Tennessee's tax and regulatory policies amenable to private-sector investment in bringing ethanol production and distribution to Tennessee?