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Historic Anti-Corn Ethanol Amendment Faces Uphill Battle

Almost three-quarters of the Senate approved a measure to end the $6-billion-a-year blenders credit, but its prospects for ultimate passage remain cloudy

Jun 23, 2011
Sen. Dianne Feinstein (D-Calif.)

WASHINGTON—Deficit hawks have practically turned sharpened scissors into a fashion accessory on Capitol Hill. What's shocking some and delighting others is the unexpected pairings of legislators willing to share a whetstone this congressional session.

Take ethanol subsidies, for instance.

Just a week ago, the Renewable Fuels Association was taken aback and the Environmental Working Group was downright giddy when almost three-quarters of the Senate approved a subsidy-slicing measure co-sponsored by Sen. Dianne Feinstein, a liberal-leaning California Democrat, and Sen. Tom Coburn, a debt-obsessed Oklahoma Republican.

Senators agreed to save taxpayers an estimated $6 billion annually by voting overwhelmingly to repeal a tax credit on corn ethanol. What's officially known as the Volumetric Ethanol Excise Tax Credit, the VEETC for short, pays 45 cents for each blended gallon.

"Ethanol is the only industry I know of that receives a triple crown of government support: its use is mandated by law, it enjoys protective tariffs and oil companies receive federal subsidies to use it," Feinstein said. "These flawed policies ... must be changed."

Growth Energy, an organization of ethanol producers, reacted to the 73 to 27 vote with a news release headlined "Senate Votes to Keep OPEC in Charge of U.S. Economy." Meanwhile, the Renewable Fuels Association is adorning city buses in the nation's capital with ads claiming that corn ethanol reduces gas prices by 89 cents per gallon.

Sheila Karpf, a legislative and policy analyst at the advocacy organization Environmental Working Group, told SolveClimate News that the industry is attempting to downplay the amendment's passage as nothing more than symbolic.

"We're up against a pretty strong horse and this is a historic vote," Karpf explained. "With 73 votes in our favor, that's a pretty big signal that support for corn ethanol is waning.

"For the other side to say it's nothing is a way to cover up how badly they lost. They had to spin it in some way, and that's the way they tried to spin it."

No Guarantees Yet

The Feinstein-Coburn measure, which passed June 16, was tacked on to a bipartisan jobs bill that was larded up with close to 100 other unrelated amendments. Democratic leaders are blaming that clog on GOP senators stretching an agreement made earlier this year that lets floor legislation be laden with unlimited amendments.

Even though the Senate didn't advance the Economic Development Revitalization Act (S. 782) Tuesday, observers are hopeful their anti-corn ethanol amendment still has legislative legs.

"Its prospects in the Senate are unknown right now," Karpf said, adding that she expected the amendment to find another "home" because that initial vote garnered so much bipartisan support. "We really haven't had a stand-alone vote on the ethanol tax ever. Winning with such an overwhelming margin indicates the strength of our coalition."

The amendment also eliminates a 54-cent-per-gallon tariff on imported ethanol. Critics have maintained that the tariff protects the industry from cheaper-to-produce and cleaner-burning sugar-cane ethanol that can come from Brazil.

Both the tax credit and the tariff are scheduled to expire at the end of this year. The Feinstein-Coburn measure is designed to put a halt to the payments June 30.

Relatively recently, Congress had two prime chances to shut the corn ethanol subsidy spigot. For instance, while both chambers engaged in frantic, down-to-the-wire horse-trading to avoid a spring government shutdown, VEETC opponents pointed to eliminating ethanol tax credits as a no-brainer.

And back in December, they had the 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.

Gaining House Momentum?

After the lopsided vote on his amendment, Coburn urged his House colleagues to get rid of this "wasteful earmark and tariff at their earliest opportunity."

Over in the lower chamber, the Environmental Working Group is hopeful that Reps. Wally Herger, a California Republican, and Joseph Crowley, a New York Democrat, will join forces as early as this week — perhaps Thursday — to introduce companion legislation identical to the Feinstein-Coburn initiative.

That House effort also will have the backing of a diverse coalition that includes representation from business associations, hunger organizations, grassroots groups, agriculture, the environmental community and budget hawks.

Indeed, Action Aid USA, Americans for Prosperity, the Competitive Enterprise Institute, Greenpeace USA, the National Black Chamber of Commerce, the National Meat Association, the Sierra Club, the Snack Food Association, the Southern Alliance for Clean Energy were among the 34 organizations signing a June 13 letter of support to Senate leaders.

"Continuing to subsidize oil companies to blend ethanol — which they are already required to do by the Renewable Fuels Standard — is wasteful and unnecessary," they wrote in a two-paragraph letter. "This amendment will save U.S. taxpayers several billion dollars this year and have virtually no impact on ethanol production, jobs or prices."

Both the Congressional Budget Office and the Government Accountability Office have concluded that dropping the subsidy won't harm domestic production or demand of corn ethanol.

Coburn praised his fellow senators for embracing pro-growth tax reform and rejecting the parochial politics that can paralyze legislators.

"The best way to reduce our crushing $14.3 trillion debt is by reducing wasteful spending a billion dollars at a time," said Coburn, whose website home page features a ticker that constantly updates the national debt. "This amendment saves taxpayers $3 billion."

RFS Should Be Enough

Everybody trying to drive a stake through corn ethanol subsidies is perplexed as to why a government-mandated renewable fuels standard isn't enough for a mature industry.

"This industry can't continue to suck more money from the federal government," Karpf said. "They are already over 90 percent of the way to their mandate."

When Congress amended the Clean Air Act by endorsing 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.

This year, the United States is required to blend 13.95 billion gallons of biofuels with conventional transportation fuels, according to Environmental Protection Agency figures.

Totals for 2011 include 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 requirement is a dramatic drop — 97 percent — from the ambitious goal of 250 million gallons targeted in 2007.

Proposed standards for 2012 that EPA rolled out Tuesday reveal that cellulosic ethanol production will continue to fall well short of expectations. The agency intends to call for a total of between 3.45 and 12.9 million gallons of cellulosic ethanol — far below the 500 million gallons Congress expected back in 2007.

"EPA will continue to evaluate the market as it works to finalize the cellulosic standard in the coming months," agency spokeswoman Cathy Milbourn said. "The agency remains optimistic that the commercial availability of cellulosic biofuel will continue to grow in the years ahead."

Overall, EPA is proposing that 15.2 billion gallons of renewable fuels be blended next year, a bump of 1.25 billion gallons from 2011. In addition to cellulosic ethanol, that total includes two billion gallons of advanced biofuel and one billion gallons of biomass-based diesel.

Next Challenge: Blender Pumps

Now that they have legislative momentum, advocates such as Karpf are also trying to keep Congress from funding an industry-supported program aimed at installing ethanol blender pumps and storage tanks at filling stations coast- to-coast to accommodate fuel with an ethanol content of at least 15 percent. EPA has acknowledged that higher blends are more corrosive than the 10 percent mix that is readily available.

Not surprisingly, corn ethanol proponents see the pumps and tanks as an integral part of an infrastructure that would also include ethanol pipelines and mandates for flexible fuel vehicles.

This spring the Department of Agriculture gave the ethanol industry an opening by proposing to make pumps and tanks eligible for federal funding under its Rural Energy for America Program.

Last week, Arizona Republican Sen. John McCain failed to rally enough allies to pass an amendment barring that use of federal funds. However, the House voted 283 to128 in favor of a similar provision floated by Rep. Jeff Flake, another Arizona Republican.

Before last Thursday's vote on his amendment, McCain told his colleagues that "lobbyists have convinced the USDA to change the rules of the Rural Energy for America Program to pay for new (ethanol-blending) gas pumps at retail stations at the expense of solar, wind and energy efficiency projects."

Anti-Subsidy Sentiment Spreading?

Congress welcomed ethanol subsidies aboard 33 years ago in response to an oil crisis. The latest version, the VEETC, was folded into the Bush administration's American Jobs Creation Act of 2004. Briefly, it exempts the ethanol portion of gasoline blends from excise taxes and establishes a tax credit for ethanol use.

But detractors argue that those financial rewards benefit wealthy oil companies that mix the ethanol with traditional fuel — not family corn farmers, agro-businesses or ethanol producers.

The Internal Revenue Service refused to answer the Environmental Working Group's probe about how those tax credits were distributed among oil companies, Karpf said.

She is far from alone in dismissing corn ethanol — which makes up six percent of the country's gasoline supply — as an energy-intensive fuel that pressures farmers to compromise environmentally sensitive land, boosts, food prices, pollutes waterways with herbicides and pesticides, and does little to lessen the nation's carbon footprint.

Karpf, the daughter of a Nebraska farmer, is elated that the Capitol Hill subsidy wagon seems to be starting to make a sharp turn away from the federal trough.

Republicans might not yet be ready to wean oil companies of billions in federal handouts, she said, but it's still a strange and confusing time when Democrats and the GOP are cooperating on executing trims to corn ethanol as well as direct payments to farmers growing corn, wheat, rice, soybeans and cotton in the next rendition of the farm bill.

While Grassley, an influential member of the Senate Agriculture Committee who lists his occupation as farmer, is a champion of hacking away at subsidies such as direct payments, Karpf said she hasn't been able to convince him to have equal zeal for cutting corn ethanol support.

"I think [members of Congress] are under the gun right now because of our dire economic condition and the huge federal deficit," she said, adding that some legislators' obsession with free markets seems disingenuous. "But if you’re going to vote to retain oil and ethanol subsidies, you’re not a free marketer."

At the Mercy of OPEC

Those in the corn ethanol industry tout their product as an environmentally friendly venture that strengthens national security, creates jobs that can't be outsourced, reduces fuel prices and lays the groundwork for fuels crafted from cellulosic biomass.

Tom Buis, the chief executive officer of the pro-ethanol trade group Growth Energy, dismisses the anti-corn ethanol amendments as industry cripplers and conduits that keep the U.S. economy at the mercy of Iran, Libya, Venezuela and other OPEC nations.

"I think it's about time we put our trust in the hands of the everyday American family, instead of putting our fate in the hands of foreign strongmen," Buis announced before the June 16 votes. "This comes at a time when we see OPEC netting $1 trillion in revenue, all because of the high price of oil. These amendments are the wrong move at the wrong time."

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