WASHINGTON— It’s a rare day when somebody pleads with Congress not to take action.
But that’s exactly the stand Kate McMahon, biofuels campaign coordinator for Friends of the Earth, is proposing. By not lifting a finger to renew a corn ethanol tax credit of 45 cents per gallon—which will expire at the end of this month if federal legislators choose to let it—she estimates taxpayers will reap an annual savings of roughly $6 billion.
And she’s not alone.
Friends of the Earth is part of an unconventional and diverse amalgam of 59 organizations from the faith, progressive, environmental, agricultural, conservative, humanitarian and public interest sectors that made a case against the subsidies in a late November letter to House and Senate leaders.
“At a time of spiraling deficits, we do not believe Congress should continue subsidizing gasoline refiners for something that they are already required to do by the Renewable Fuels Standard,” they wrote. “Experts like 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.”
And those same concerns seem to have traction on the Hill. In a bipartisan move uncommon in Congress these days, 17 Democratic and GOP senators also signed a Nov. 30 letter spearheaded by Sens. Dianne Feinstein, D-Calif., and Jon Kyl, R-Ariz., requesting an end to the ethanol subsidy. The document addressed to Majority Leader Harry Reid, D-Nev., and Minority Leader Mitch McConnell, R-Ky., pillories the 45-cent-per-gallon subsidy for blending ethanol into gasoline as fiscally irresponsible and environmentally unwise.
Will Farm States Let Go?
But the subsidy—known as the Volumetric Ethanol Excise Tax Credit, or VEETC—is the classic political football. Legislators from agricultural states such as Iowa Republican Sen. Chuck Grassley are longtime advocates of ethanol subsidies.
Grassley, who lists his occupation as farmer, is so fired up about the idea of losing ethanol subsidies that he made a floor speech December 2 asserting that the cutback will make the nation “more dependent on those oil sheiks.” He also said it is “ridiculous to claim that the 30-year-old ethanol industry is mature and thus no longer needs the support they get.”
Grassley has already butted heads with fellow Republican Sens. Tom Coburn of Oklahoma and Jim DeMint of South Carolina. Both conservatives have urged Congress to let the tax credit fade away.
“We need to let the ethanol subsidies expire and we need energy developed based on market forces,” Coburn told Washington Post blogger Greg Sargent. Coburn contended senators who are not on board are “just protecting a parochial interest ahead of the national interest.”
Though McMahon said she is encouraged by these reinforcements, she and other coalition members still fear that Congress will extend the ethanol tax credit by sliding it into another package of bills during the current lame-duck session.
“It will be a test for those who say they want to reduce spending,” she told SolveClimate News in an interview. “I would question how genuine their call to reduce spending is if they are unwilling to act on this.”
Gale Lush, chairman of the Nebraska-based American Corn Growers Foundation, is incredulous that anybody is bashing a domestic fuel source he refers to as a “U.S. economic security superstar.”
“We need more members of Congress like U.S. Senator Chuck Grassley of Iowa who recently took on those who are attacking ethanol credits and incentives and we applaud him for standing strong,” Lush said in a statement.
He argues that ethanol-gasoline-equivalent production amounts to more than U.S. oil imports individually from Algeria, Brazil, Nigeria, Iraq, Angola, Venezuela, Saudi Arabia and Mexico.
The U.S. ethanol industry also faces losing the protection of a 54-cent-per-gallon tariff on imported ethanol at the end of the year. Critics say the tariff protects the industry from cheaper-to-produce sugar-cane ethanol.
In their November letter to Senate leaders calling for an end to subsidies, the 17 lawmakers also advocated for letting the tariff expire.
“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. “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.”
Congress first created an ethanol subsidy more than 30 years ago in response to the nation’s oil shortages.
The latest version of the subsidy, the VEETC set to expire at year’s end, 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.
Critics claim that the VEETC no longer encourages biofuel consumption because the congressionally mandated renewable fuel standard now dictates the purchase of ethanol by fuel blenders, thus far at a greater volume than the market demands.