PREVIEW-Tight US Senate vote seen on ethanol subsidy

WASHINGTON Mon Jun 13, 2011 6:53pm EDT

WASHINGTON (Reuters) - The ethanol industry's subsidies expire at the end of this year but the battle in Congress over whether to eliminate them -- amid efforts to cut the budget and lower food costs -- has come six months early.

The Senate is scheduled to vote on Tuesday on a proposal from Republican Senator Tom Coburn to end the federal ethanol tax credit and the tariff on ethanol imports.

Lawmakers, who face fierce opposition from farm state lawmakers and the ethanol lobby, will consider adding an ethanol subsidy-busting amendment to another bill.

The vote comes as lawmakers are looking for ways to cut spending and as criticism mounts globally over subsidies for corn-based ethanol, blamed by some for pushing up food prices.

Last week, 10 international organizations including the World Bank called on governments to scrap ethanol subsidies on the grounds they were driving up world food prices.

The fact that most ethanol is made from corn, livestock producers say, has pushed up their feeding costs, in turn raising food prices paid by households. Environmentalists also complain the fuel is hardly green because of the energy intensity of modern industrial farming.

The Coburn amendment is targeting the 45 cents that the government gives refiners for every gallon of ethanol they blend with gasoline.

Also proposed for a cut is the tariff wall that protects the U.S. industry from ethanol imports, such as the much cheaper sugar-based ethanol from Brazil. Ethanol imports are slapped with a tariff of 54 cents per gallon.

If enacted, the amendment would save $3 billion for the rest of this year and $6 billion annually.

"Eliminating the ethanol tax earmark and tariff would be a big step toward restoring fiscal sanity in Washington," Coburn said. "Ethanol is bad economic policy, bad energy policy and bad environmental policy."

JOBS AT RISK?

Under Senate rules, the amendment will need the support of 60 of the chamber's 100 members to block a filibuster of the proposal. The vote is expected to be close.

"We don't want to cut our way out of a job opportunity," said Agriculture Secretary Tom Vilsack, defending biofuels in a speech at the National Press Club. He said the ethanol industry created thousands of rural jobs and boosted farm income.

Vilsack said lawmakers should tread carefully on any revisions, adding that "it's fairly clear" the import tariff will end eventually. Asked whether he was telephoning senators about the Coburn amendment, Vilsack said: "I don't need to."

Ethanol producers slammed Coburn's proposal, saying it would raise gasoline prices and make the United States more dependent on oil imports.

The industry cites a report from the Center for Agriculture and Rural Development, an Iowa State University research group, that found ethanol reduced the price of gasoline by 89 cents a gallon last year.

Bob Dinneen, president of the Renewable Fuels Association, said if Coburn's amendment were really about concerns over energy tax subsidies, then it would also repeal about $2 billion a year in tax breaks for the biggest oil companies.

"Removing the ethanol tax incentives without reforming the transportation fuels market would effectively raise gas prices and only perpetuate our addiction to foreign oil by limiting consumer choice at the pump," the Growth Energy ethanol trade group said in a letter to its supporters, urging them to let Congress know they opposed Coburn's amendment.

Republican Senator Jim DeMint said he would vote for Coburn's amendment.

"Americans are being forced to subsidize corn ethanol that drives up the cost of gas, lowers gas mileage, harms automobile engines, releases carcinogens into the air, and drives up food prices which harms the poor," he said.

Even if the amendment passes, the underlying bill would have a hard time clearing the Senate. The measure would also have to make it through the House of Representatives, where there are many farm state lawmakers that back ethanol.

The legislation would face opposition from President Barack Obama, who wants to reform and reduce ethanol subsidies and would not likely sign a bill that quickly eliminates them. The ethanol industry also supports reforming the subsidies.

Republican Senator Charles Grassley and fellow Democrat Kent Conrad have introduced legislation to continue the blender tax credit and import tariff at much lower rates for five years.

(Additional reporting by Charles Abbott; Editing by Russell Blinch and Dale Hudson)

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