Battle Over Extension of $31Bn Corn Ethanol Subsidy Heats Up

Both sides use mounting frustration over America’s oil dependence to sway the public

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Ethanol lobbyists are bumping up against a new wave of resistance in Washington as green groups crank up pressure on Congress to let a  multi-billion dollar tax credit for corn-based ethanol expire at the end of the year.

Four of the nation’s largest environmental organizations took out a one-page ad in Congress Daily pleading with lawmakers to block a push to extend the subsidy for five more years. It is part of an ongoing campaign launched by the groups six months ago.

The Volumetric Ethanol Excise Tax Credit (VEETC), also known as the “blender’s credit,” gives oil companies $0.45 for each gallon of pure ethanol they blend with gasoline. The credit went into effect in 2005 under the Bush administration’s American Jobs Creation Act of 2004. 

The Natural Resources Defense Council, the Union of Concerned Scientists, Friends of the Earth and the Clean Air Task Force had sharp words for supporters of the controversial perk, calling it “nothing more than a further endorsement of industrial agriculture and another handout to one of the most profitable industries in the world: Big Oil.”

Ending it altogether may be tough to achieve, however.

In April, Sens. Charles Grassley (R-Iowa) and Kent Conrad (D-N.D.) introduced legislation that would safeguard the subsidy, after a nearly identical bill passed the House in March. At that same time, Growth Energy, a lobby group, launched a first-ever $2.5 million television ad campaign aimed at changing corn ethanol’s battered image to being cleaner and safer than oil.

Environmental groups say the tax credit has funneled $21 billion into oil firms. And if it gets extended, $31 billion more will flow between 2011 and 2015. There will be “no pollution reductions” and “no energy security,” the newspaper ad said.

Both Sides Tap into Big Oil Frustration

The campaign’s anti-oil message might appeal to voters who have begun to question whether propping up the super majors makes sense for the nation’s future. Indeed, a new CBS/ New York Times poll in the wake of the Gulf of Mexico oil spill shows that nine in 10 Americans from both parties think the U.S. needs an entirely new energy direction.

But as the crisis nears the three-month mark, ethanol supporters have been aggressively touting biofuels as the solution. “No beaches have been closed due to ethanol spills,” one of the Growth Energy ads states.

Geoff Cooper, vice president of research at the Renewable Fuels Association, a trade group, said there is a “fair amount of spin” in the claim that only Big Oil benefits from the VEETC billions. “Some portion of the tax credit” is being distributed to ethanol producers and blenders, he told SolveClimate.

For opponents, the tax credit’s focus on corn is another big cause for worry. Corn ethanol fails to make a dent in greenhouse gas emissions, can cause food price spikes and diverts federal dollars away from other alternative energy sources, such as cellulosic biofuels, and solar and wind energy, they argue.

Though the VEETC does not favor one biofuel feedstock over another – corn, sugar and plant-based fuels all qualify – much of it would end up upholding the status quo, Kate McMahon, a campaigner for Friends of the Earth, said.

“[The tax credit] can go anywhere, but what we’re producing today in this country is corn ethanol. We’re not producing alternative forms of ethanol,” she added.

Wasteful or Wise Investment?

The groups are particularly angry that lawmakers are pushing to extend a subsidy that they say is repetitious. The ethanol industry is already required by law to mix 15 billion gallons of ethanol into the nation’s gas supply in 2015 and 36 billion gallons by 2022 under the Renewable Fuel Standard (RFS), which took effect on July 1.

“[VEETC] is a wasteful use of our taxpayers dollars,” McMahon said.

Supporters, however, see it as wise investment — and they have data to defend their claims.

According to figures from RFA, the U.S. ethanol industry produced a record 10.75 billion gallons of the biofuel in 2009. That boom, the group says, is reducing the nation’s demand for foreign oil by over 360 million barrels, or about one month’s worth of foreign oil consumption.

The RFA further dispute claims by campaigners that the VEETC is redundant. Under the RFS, they argue, ethanol can come from foreign sources. The VEETC, they say, is the only market incentive that encourages purchasers to buy up the nation’s homegrown supply.

“The RFS could in part or entirely be satisfied by imported renewable fuels if such volumes were available,” Cooper said. While that’s not likely to happen, he explained, “without the tax credit in place, you would certainly see increased volumes of imported biofuels used to meet the RFS.”

And that, the industry claims, would lead to job losses.

According to a recent RFA-backed study by economist John M. Urbanchuk of consulting firm Entrix, Inc., without the tax credit, U.S. ethanol production could drop by as much as 37.7 percent or by 4 billion gallons, and would result in the loss of more than 112,000 U.S. jobs.

“The United States would simply substitute one type of imported fuel for another,” the study said.

Bill Runs into Government Money Woes

Both houses of Congress have introduced bills backed by RFA that would extend the VEETC through 2015.

Reps. Earl Pomeroy (D-N.D) and John Shimkus (R-Il.) introduced the Renewable Fuels Reinvestment Act of 2010, or H.R. 4940, into the U.S. House in late March. On April 20, the Growing Renewable Energy through Ethanol Naturally (GREEN) Jobs Act of 2010, S. 3231, was introduced in the Senate.

In addition to the VEETC expansion, both bills would extend a larger tax credit for producers of next-generation cellulosic ethanol through 2015, at $1.01 per gallon; the current such credit expires at the end of 2012.

According to McMahon, the odds of the bill passing are slim, and the main reason is cost.

“It’s extraordinarily expensive,” said McMahon. “Last year’s tax extenders haven’t been passed yet just because they have no money in the government coffers right now.”

Brendan Bell, senior Washington representative for the Union of Concerned Scientists, agreed. 

“The $31 billion price tag for VEETC is really weighing down its chances in Congress. There are too many other worthy tax credits that need to be funded that actually deliver benefits, as opposed to just going to the oil industry to follow the law,” Bell told SolveClimate in an email.

“Between the large price tag and the reluctance to give the oil industry more money in the wake of the Gulf Spill, the VEETC will face a lot of roadblocks in Congress.”

Cooper, of RFA, said he is “still very confident” that the tax credit will be extended this year, especially if last-minute energy legislation squeaks through.

“The challenge right now is that when you look at Congress’ schedule it’s getting even tighter, and there aren’t a whole lot of working days left before the elections,” he said. “If some type of energy legislation were to move, we would envision that … a VEETC extension would fit right in there.”

See also:

Ethanol Production Follows the Subsidies

Will Extending the Ethanol Tax Credit Slow Progress Toward Advanced Biofuels

Developing World Sees Wealth in Biofuel Production

Turning Food Into Fuel While Families Go Hungry

Algae Emerges as DOE Feedstock of Choice for Biofuel 2.0

Airlines Could Be Flying on Biofuel Within 5 Years