Early end to ethanol credit fails in Senate

By Ana Radelat

Capitol News Connection

WASHINGTON - The Senate turned back an effort to end a $5 billion annual ethanol subsidy Tuesday, but it's only a reprieve.

The credit is still set to expire by the end of the year, and Iowa's senators continue looking for new ways to help the industry.

Sen. Tom Coburn, R-Okla., a budget hawk, wanted to eliminate a 45 cent-per-gallon tax break for ethanol refiners, effective July 1.

Coburn argued the tax incentive isn't needed because refiners are required by federal law to blend a certain amount of ethanol - 7.5 percent - into gasoline.

Coburn also argued ethanol subsidies are pushing up the price of corn and other food items.

“We're slaughtering dairy cows all across this country because 70 percent of the cost of dairy cows is the corn that you feed them,” he said. “We're going to get all sorts of untoward interruptions and price increases in our food if we continue this silly policy.”

The Senate defeated Coburn's ethanol amendment on a 40-59 vote.

Supporters of continued federal spending for ethanol argued it is a leading source of alternative fuel and is needed to reduce U.S. dependence on foreign oil.

“With conflicts in the Middle East and crude oil priced at more than $100 a barrel, we should be on the same side. Why would anyone prefer less domestic energy production,” Sen. Chuck Grassley, R-Iowa, said when the measure was debated at length on Monday.

Matt Hartwig, a spokesman for the Renewable Fuels Association said a July 1 end to the tax credit would have meant an immediate 4.5-cent per gallon increase in the price of gasoline.

“This vote demonstrates the lack of appetite for this kind of destructive policy and political gamesmanship,” he said.

Grassley and Sen. Tom Harkin, D-Iowa, helped defeat the Coburn amendment.

“At the beginning of the year, investments were made, companies did certain things on the basis that the ethanol subsidy was there. People were hired, contracts were made ... you can't just end that in the middle of the year,” Harkin said.

But Tuesday's Senate vote hasn't extended the ethanol tax credit's life by much.

It's set to expire Dec. 31 and there's little political will in Washington to extend it.

So Grassley, Harkin and other farm state lawmakers are seeking a compromise.

“The battle is not over,” Grassley said.

He and other lawmakers from corn-producing states are backing a plan that would phase out the ethanol tax credit slowly and tie it to the price of oil. If oil prices drop to less than $90 per gallon, the subsidy would kick in.

The compromise would also include a tax break to install new ethanol-blend pumps at gas stations with the goal of installing 53,000 of them nationwide.

Grassley said President Barack Obama supported the blender credit when he was a senator from Illinois. He hopes the president does again.

“Now what I would do is call on the president to get involved in this,” he said.

Harkin supports the compromise and has sponsored other ways to help the industry.

He's proposing more than tax breaks to promote the installation of new blender pumps at gas stations. Harkin wants mandates on oil companies that would require them to install those pumps.

He also wants to require automobile companies to manufacture more flexible fuel cars and new loan guarantees to help the creation of a new ethanol pipeline

The Associated Press contributed to this story.