Washington, D.C. was a buzz with discussions surrounding ethanol production as a variety of bills surfaced throughout the week looking for a consensus. Some were defeated, others didn’t see the light of day, finally on Thursday the Senate voted to repeal the Volumetric Ethanol Excise Tax Credit, which had offered ethanol producers a 45-cent-per-gallon credit. VEETC is about a $5 million program and was set to expire by Jan. 1, 2012.
Sen. Dianne Feinstein (D-Calif.) presented the measure, which passed by a vote of 73 to 27, repeals the $5-billion-annual VEETC subsidy immediately and repeals a 54-cent-a-gallon tariff on imported ethanol, which restricts imports, mainly from Brazil. The voted sorted out as 33 Republicans and 40 Democrats who voted to eliminate the ethanol subsidy.
This action follows the defeat of Sen. Tom Coburn’s (R-Okla.) proposed bill to end the VEETC immediately. Mid-week Sens. John Thune (R-S.D.) and Amy Klobuchar (D-Minn.), and 13 bipartisan co-sponsors, introduced legislation to end the VEETC by July and base the variable credit on oil prices and then offer it to vendors who install pumps to provide the ethanol/gasoline blended fuel.
While not a 100 percent done deal, the measure will be included in a bill renewing a federal economic development program. Final prospects are uncertain, according to Senate watchers, but Thursday's vote endangers the ethanol tax credit. The Senate vote also will make it easier for the House to consider similar action.
"The administration supports efforts currently under way in the Senate to reform and modernize tax incentives and other programs that support biofuels," Agriculture Secretary Tom Vilsack said in a statement. "However, today's amendments are not reforms and are ill advised. They could lead to job loss and pull the rug out from under industry, which will lead to less choice for consumers and greater dependence on foreign oil."
With severe and challenging federal budget negotiations ahead, cutting the VEETC is one step that some in Washington are hoping will illustrate special interest tax breaks are on the chopping block. VEETC is among dozens of business and individual tax breaks that Congress usually renews each year. "The best way for ethanol to survive is to stand on its own two feet, without spending something we don't have to get something we're going to have anyway," Coburn said.
Ethanol production was not cut out completely, the Senate voted 59 to 41 to reject a measure presented by Sen. John McCain (R-Ariz.) that would have eliminated government funding for ethanol blender pumps and storage facilities-- infrastructure needed to get its product to consumers. The House passed a similar measure on Thursday, by a vote of 283-128, adding it to its agriculture spending bill.
Also, the Congressional mandate that requires refiners to blend 36 billion gallons of biofuels into auto fuel by 2022 remains intact.
As could be expected, the National Corn Growers Association was among the agriculture groups upset by the Senate’s ethanol tax vote. “Today the Senate voted against rural America and domestic, renewable energy, and in favor of more foreign oil,” Bart Schott, NCGA president and grower from Kulm, N.D., said. “Sen. Feinstein has unfairly hit at the heart of an important agricultural industry while remaining unified with subsidy-laden Big Oil.”
Schott pointed out that one comprehensive report found that subsidies for the oil industry total up to $280 billion annually, representing up to $2 per gallon of gasoline. A recent legislative effort to eliminate $2 billion of these oil subsidies went nowhere in Congress, he noted, after organizations like the National Taxpayers Union painted it as a tax increase.
The ethanol industry supports more than 400,000 U.S. jobs, contributing more than $56 billion each year to the nation’s economy and $11 billion in federal, state and local tax revenue, Schott said.
The livestock and poultry sectors in particular have a different view of incentives for ethanol as corn-ethanol production has grown substantially in recent years. While livestock and poultry sectors have long claimed 40 percent of the annual U.S. corn crop, ethanol has just recently match that market share, adding significantly to the supply and demand competition.