The future of $6 billion in federal ethanol subsidies are up in the air after the U.S. Senate voted to eliminate them.
Sen. Tom Coburn (R-Okla.) and Sen. Dianne Feinstein (D-Calif.) worked together to pass an amendment through the Senate on June 16 to the Economic Development Revitalization Act of 2011 that eliminated the Volumetric Ethanol Excise Tax Credit (VEETC), which is also known as the “blender’s credit.”
Created in 2004 as part of the American Jobs Creation Act, the credit provides a .45 cents per-gallon credit on pure ethanol and a .54 cents per-gallon tariff on imported ethanol. Its intent was to encourage the marketing of ethanol/gasoline blends.
However, renewable fuel standards in the Energy Independence and Security Act of 2007 (EISA), expanded ethanol’s role in the national fuel supply from nearly 1 percent in 2000 to nearly 10 percent in 2010 by mandating the blends that VEETC incentivised. By the year 2022, due to these mandates, ethanol production is expected to rise to 36 billion barrels a year.
These standards and projected growth have many in Washington D.C. questioning whether or not ethanol needs federal subsidies any longer at a time when the size and scope of government programs are shrinking dramatically.
“Today’s vote was a major victory for taxpayers and a positive step toward a serious deficit reduction agreement, which is our only hope of averting a debt crisis. An overwhelming bipartisan majority of senators embraced pro-growth tax reform while rejecting the parochial politics that so often paralyze the Senate,” Coburn said after the 73 to 27 vote in the Senate to end the VEETC. “The best way to reduce our crushing $14.3 trillion debt is by reducing wasteful spending a billion dollars at a time. This amendment saves taxpayers $3 billion.”
Kansas Senators Jerry Moran and Pat Roberts both voted against the Coburn/Feinstein amendment.
"It's time to change our policy towards ethanol for a number of reasons, but given the investment in ethanol plants across Kansas and the jobs they provide, these changes need to be made through a more measured approach than what was presented to the Senate last week," Moran said.
Roberts agreed, stating in a release, “I believe we should reform our current ethanol policy as a nation, but I also believe we shouldn’t pursue policy that could potentially cripple the significant number of ethanol producers operating in our state.”
However, 1st District Congressman Tim Huelskamp, whose district contains nine of the state’s 11 ethanol plants, said most producers are ready to stand on their own.
“Most individuals I visit with are ready to move away from being subsidized,” Huelskamp said. “They believe if they have access to the marketplace, they can compete.”
Nationally, the American Coalition for Ethanol (ACE) has bushed back hard against Coburn’s bill, calling it “symbolic” and dismissing its chances of becoming law.
“While today’s vote has no chance of becoming law, because it is part of an underlying bill that is unconstitutional and dead-on-arrival in the House of Representatives, it is nonetheless disappointing,” said ACE Executive Vice President Brian Jennings after the vote. “If the amendment were to be enacted, it would raise gas prices and fuel taxes on American consumers, jeopardize U.S. jobs, put advanced biofuels in grave danger and limit consumer fuel choice.”
Jennings also lashed out at $4 billion in oil subsidies that Congress recently voted to extend.
“We are disappointed senators are willing to reward big oil for shamelessly hoarding subsidies, but are willing to penalize the biofuels industry, especially when we’ve voluntarily offered to sacrifice part of the existing tax credit for deficit reduction,” Jennings said, referring to an ACE supported bill written by Sen. John Thune (R-S.D.) and Sen. Amy Klobuchar (D-Minn).
That bill. the Ethanol Reform and Deficit Reduction Act, would, end the VEETC on July 1 and dedicate $1.5 billion of savings to renewable fuel infrastructure. Moran has signed on as a sponsor of the bill.
However, the bill contains provisions that would expand the alternative fuel station tax credit to include blender pumps and extend the credit through 2016, or until the Secretary of the Treasury certifies 53,000 blender pumps, whichever comes first. The bill would also expand through 2014 the small producer ethanol credit, which is currently set to expire on Dec. 31. That credit is valued at .10 cents per-gallon, which can be claimed on the first 15 million gallons of ethanol produced by anyone with a production capacity of under 60 million gallons per year.
The credit could amount to as much as $1.5 million a year for small producers.
"Our bipartisan legislation would provide businesses a clear glide-path to move forward and keep the biofuels industry competitive while reducing our debt by a billion dollars this year," stated Klobuchar. "Homegrown energy has played an important part in reducing our dependence on foreign oil, combating rising gas prices, and supporting thousands of jobs in Minnesota and throughout our nation."
The House will, most likely, not take up any ethanol legislation until the fall because Speaker of the House John Boehner intends to focus on the federal debt ceiling. However, according to Huelskamp, all options for reducing the deficit will be considered.
“We don’t expect any tax bills until the fall. All subsidies and spending are on the table,” Huelskamp said, again stating his belief that the ethanol industry is competitive. “It’s a big issue and a big deal.”
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McPherson, Kan. —
