Bipartisan Bill to End U.S. Ethanol Credit Faces Uncertain Fate
Congressional opponents of the $6-billion-a-year blenders credit see eliminating it as a no-brainer, while stalwart advocates are likely to put up a fight
By Elizabeth McGowan
WASHINGTON—It turns out Sens. Ben Cardin and Tom Coburn have more in common than six-letter last names that begin with the letter "C."
The Maryland Democrat and Oklahoma Republican have drawn a substantially higher number of cheers than jeers for introducing bipartisan legislation this week to repeal a tax credit on corn ethanol that could save taxpayers roughly $6 billion per year.
Both senators refer to the blenders tax credit as costly and ineffective in a joint statement. What's officially known as the Volumetric Ethanol Excise Tax Credit, or VEETC, pays 45 cents for each blended gallon.
Coburn, a conservative long known as a fiscal watchdog, labeled the ethanol tax credit as "bad economic policy, bad energy policy and bad environmental policy."
"The $6 billion we waste every year on corporate welfare should instead stay in taxpayers' pockets where it can be used to spur innovation, stimulate growth and create jobs," the conservative Oklahoman said Wednesday.
"I'm hopeful my colleagues on both sides of the aisle will take a stand against business-as-usual special interest giveaways and eliminate this wasteful and harmful subsidy."
Ending VEETC Not Simple
Last December, Congress had an opportunity to let the then five-year-old tax credit die a natural death when it expired at the end of the month. However, stalwart ethanol-subsidy advocates from agricultural states, such as Iowa Republican Sen. Chuck Grassley, pressured legislators to renew the VEETC during the lame-duck session.
Now that both legislative chambers are duking it out while figuring how to avoid a shutdown and fund the federal government through Sept. 30, VEETC opponents point to eliminating ethanol tax credits as a no-brainer.
Thus far, the Senate has rejected a House package passed in February that cleaves $61 billion from the budget for the remainder of 2011. House Republicans claim a deficit hovering near $1.4 trillion and a national debt looming at $14 trillion as their motivation for such severe chopping.
If so, the anti-VEETC crowd might wonder why ethanol tax credits aren't at the top of the trim list. Mostly it's because of a Capitol Hill aberration that draws a sharp divide between legislating and appropriating.
And that is eternally frustrating to Kate McMahon with the advocacy organization Friends of the Earth. Congress, she emphasized, could operate more efficiently and thoughtfully if it took less of a piecemeal and more of a holistic approach to policy.
"The hard part is that the budget is in a different world from appropriations and you can't legislate in the appropriations process," McMahon, FOE's biofuels campaign coordinator, told SolveClimate News in an interview. "We could be doing both of these things at once and not doing them in silos. It's an insane narrative. We need to be having a broader conversation."
The reason that arriving at budget figures for 2011 is so convoluted is because House and Senate leaders failed to pass the 2011 White House budget during December's gridlock when both chambers had Democratic majorities. Instead, they opted to approve a temporary spending bill that operated the government at fiscal 2010 levels through March 4.
A few days before that deadline last week, legislators cobbled together an emergency-spending bill to fund the government through March 18. The stopgap spending measure includes $4 billion in cuts. Now, Vice President Joe Biden, a former senator, is tasked with hammering out a compromise with House and Senate decision-makers that keeps the government functional through the six-plus months remaining of this fiscal year.
One Among Several Ethanol Bills
The Cardin-Coburn bill isn't the initial measure geared at blocking ethanol tax credits but it's believed to be the first bipartisan one. It is also aimed at all conventional ethanol made from corn and sugar sources such as sugar beets.
A less aggressive measure cosponsored by Democratic Sens. Dianne Feinstein of California and Jim Webb of Virginia targets subsidies to corn ethanol.
In addition, the Feinstein-Webb bill, also introduced Wednesday, would lower the tariff on imported ethanol to match the 45-cent-per gallon subsidy that will remain in place under what the duo calls "non-corn, second generation advanced biofuels."
"Ethanol is the only industry that benefits from a triple crown of government intervention: its use is mandated by law, it is protected by tariffs, and companies are paid by the federal government to use it," Feinstein said. "By lowering the import tariff to match the non-corn ethanol credit, we allow refiners to purchase cheaper, environmentally-friendly ethanol from foreign sources while at the same time preventing foreign producers from benefitting from U.S. subsidies."
Supporters Flock to Cardin-Coburn
Friends of the Earth is part of an unconventional and diverse amalgam of dozens of organizations from the business, budget-hawk, faith, progressive, environmental, agricultural, conservative, humanitarian and public interest sectors that applauded Sens. Cardin and Coburn for their joint effort.
"Henry Ford built his first car, the Quadricycle, to run on pure ethanol," noted Marlo Lewis, a senior fellow with the Competitive Enterprise Institute, a right-leaning organization that is on board. "That was in 1896. In 1908, Ford built the first flexible fuel vehicle capable of running on either gasoline or ethanol. Today, more than a hundred years later, the perennial infant known as the corn-ethanol industry still can't 'compete' without government coddling."
In a joint statement, the 90 coalition members pointed out that experts such as the Congressional Budget Office and the Government Accountability Office have concluded that the subsidy is no longer necessary, and leading economists agree that ending it would have little impact on ethanol production, prices or jobs.
Cardin and Coburn emphasized that the VEETC essentially provides "free money" for blenders who are already congressionally mandated by the renewable fuels standard to blend ethanol into fuel. Thus far, critics claim, blending is happening at a greater volume than the market demands.
Congress first created an ethanol subsidy more than 30 years ago in response to the nation's oil shortages. The VEETC, the latest version, went into effect in 2005 under the Bush administration’s American Jobs Creation Act of 2004. In a nutshell, the VEETC exempts the ethanol portion of gasoline blends from gasoline excise taxes and sets up a tax credit for ethanol use.
When Congress amended the Clean Air Act by passing the Energy Independence and Security Act in 2007, it upped the renewable fuels standard by requiring that 36 billion gallons of biofuels be produced by 2022.
In 2011, the United States will be required to blend 13.95 billion gallons of biofuels with conventional transportation fuels, according to figures the Environmental Protection Agency announced in late November.
The total for 2011 includes 1.35 billion gallons of advanced biofuel, 800 million gallons of biomass-based diesel and 6.6 million gallons of cellulosic biofuel. The cellulosic ethanol figure is a dramatic drop — 97 percent — from the ambitious goal of 250 million gallons targeted in 2007.
Bi-Partisan Letter Pre-Dated Legislation
Cardin, Coburn, Feinstein and Webb were among 17 senators who signed a letter addressed to Senate leaders last November that pilloried the 45-cent-per-gallon subsidy for blending ethanol into gasoline as fiscally irresponsible and environmentally unwise.
In addition, the signers also advocated for letting a 54-cent-per-gallon tariff on imported ethanol expire. Critics say the tariff protects the industry from cheaper-to-produce sugar-cane ethanol.
"The tariff is nine cents per gallon higher than the ethanol subsidy it supposedly offsets, and this lack of parity puts imported ethanol at a competitive disadvantage against imported oil," they wrote in their November letter. "This discourages transportation fuel imports from Brazil, India, Australia, and other sugar producing countries, and leads to more oil and gasoline imports from OPEC countries that enter the United States tariff-free."
Not Everybody on Board
Growth Energy, a pro-ethanol industry group, called the Cardin-Coburn measure "the wrong choice at the wrong time."
"The ethanol industry is fully prepared to reform and reduce the cost of current tax programs," chief executive officer Tom Buis said, adding that legislators should require the oil industry to do the same. "Growth Energy proposed last year, in its Fueling Freedom plan, reforming the ethanol tax program and adopting policies to benefit consumers at the pump."
Buis praised the ethanol industry as an environmentally friendly venture that creates jobs that can't be outsourced and strengthens the country's national security.
But Cardin and the coalition backing his bill argued that the financial rewards of the ethanol tax cuts benefit oil companies that blend the ethanol with traditional fuel — not family corn farmers, agro-businesses or ethanol producers.
"Cutting yet another subsidy to big oil that is making big profits is smart policy," said Cardin, the Maryland senator with a longtime interest in cleaning up the Chesapeake Bay and other environmental issues.
"Rather than underwriting ethanol subsidies that are causing food prices to skyrocket, we should be supporting American innovation in more sustainable alternative fuels the results of which will help create jobs, lower energy costs and strengthen our national security."See Also: Bipartisan Groups Want to End Ethanol Subsidy and Save Taxpayers Billions Corn Ethanol Subsidy Under Siege from Many Quarters, Renewal in Question EPA Ethanol Expansion Hardens a Divide
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