Update: It Would appear that our Senators have decided to keep ethanol subsidies.

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Blog editor

The  ethanol production grants 2011 brings up a few questions that I would like answered. Why are we using our  fertile fields to grow corn and turn it into ethanol instead of growing food? I am having a hard time finding out the true production cost and the subsidies  that  are included at the pump. Have included three articles that talk about different aspects of this issue. The research on this will continue and updates forthcoming.

Samuel Burns

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Effort to End Tax Credit for Ethanol Fails in Senate

By CARL HULSE

Published: June 14, 2011

WASHINGTON — The Senate beat back a challenge to ethanol fuel subsidies on Tuesday in a demonstration of how the drive to cut the federal deficit can run headlong into a favored interest on Capitol Hill.

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Senate Vote 89: Rejects Repeal of Ethanol Subsidies

At the same time, Vice President Joseph R. Biden Jr. expressed confidence about bipartisan talks aimed at producing a budget deal that would clear the way this summer for an increase in the federal debt ceiling. He predicted that lawmakers would have a proposal for “beyond $1 trillion” in savings by the Fourth of July recess.

“We are down to the really hard stuff,” Mr. Biden told reporters after the first of three meetings of the negotiators this week.

On the ethanol subsidy, critics wanted to eliminate, as of July 1, the 45-cent-per-gallon tax credit offered to refiners for using the corn-based fuel at an estimated cost of nearly $6 billion a year. The 59-to-40 vote on Tuesday to advance the measure was 20 votes short of what was needed.

The tax benefits are set to expire at the end of the year, but their proponents are already working to renew them.

Most Democrats banded together with farm-state Republicans to defeat the effort by Senator Tom Coburn, Republican of Oklahoma, who along with his allies charged that federal ethanol supports are wasteful and unnecessary and are increasing the cost of food by inflating the price being paid for corn.

“Parochialism trumps the best interests of the nation,” Mr. Coburn said after the vote.

Those who opposed him, while acknowledging that the ethanol subsidies are likely to be eased out eventually, said it would be disruptive to the agricultural and fuel markets to make a sudden change.

“We have a lot of folks who made investments, you have people across the country whose livelihoods and jobs depend upon this,” said Senator John Thune of South Dakota, one of 13 Republicans who opposed the Coburn plan. “I think it makes sense, when we put policy in place and we say it is going to be in place for a certain period of time, that that be honored.”

Some Democrats said they based their opposition to Mr. Coburn’s plan on a procedural move he made to force the vote, saying he had usurped the authority of majority Democrats to control the floor. Senator Harry Reid, the Nevada Democrat and majority leader, said Democrats would be back soon with an alternative proposal.

Still, the resistance to eliminating the subsidies showed the tough choices lawmakers will face as they try to agree on the emerging budget deal that Republicans say should cut $2 trillion or more from programs that will have stronger support than ethanol promotion.

“It seems to me to be a pretty easy one,” said Senator Jeff Sessions of Alabama, the senior Republican on the Budget Committee, about the ethanol program. It was created to provide an incentive for the development of domestic alternative fuels as a substitute for imported oil.

Critics of the ethanol program noted that energy legislation enacted in 2007 requires oil companies to produce 36 billion gallons of biofuels like ethanol by 2022, arguing that refiners will have to rely on ethanol whether it is subsidized or not.

“We simply can’t afford to pay the oil industry for following the law,” said Senator Susan Collins, Republican of Maine.

Ethanol backers said an end to the subsidy would drive up the price of fuel and make the nation more reliant on imports. “We shouldn’t be fighting each other over domestic energy sources,” said Senator Charles E. Grassley, Republican of Iowa, who called his colleague’s proposal misguided and out of touch.

Congressional officials said it was possible that the ethanol cuts could be included as part of the savings sought through the Biden budget agreement, though Republicans have generally resisted seeking revenue by eliminating subsidies for the energy industry.

The Biden group was meeting off the Senate floor even as the Senate upheld the ethanol tax credits.

“I’m convinced that we can come up with an agreement that gets the debt limit passed and makes some real serious down payment on the commitment to 4 trillion bucks over the next 10 to 12 years,” the vice president said, referring to the spending reduction goal of President Obama
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RFA praises Thune/Klobuchar bill transforming ethanol tax policy

June 13, 2011

(June 13, 2011)  Washington – The Renewable Fuels Association (RFA) today praised the introduction of a bipartisan bill that would transition and transform current ethanol policy to both address fiscal concerns as well as ensure the continued growth of and innovation in America’s ethanol industry. The bill, known as the Ethanol Reform and Deficit Reduction Act, was introduced by Senators John Thune (R-SD) and Amy Klobuchar (D-MN) and a bipartisan group of 9 Senate colleagues.

The bill would transition the current ethanol tax incentive, known as VEETC, to a variable tax incentive tied to the price of oil. Additionally, the bill would make available funds saved by the transformation of VEETC to expand ethanol fueling infrastructure by improving tax policies currently available for blender pumps and other ethanol-related infrastructure. Specifically, the bill calls for 53,000 blender pumps, a number the RFA noted was needed to help achieve the goals of the Renewable Fuels Standard.  The bill would also extend current tax incentives for the next generation of ethanol technologies using cellulosic and other feedstocks. If passed, the bill would take effect July 1, 2011. This bill is similar to legislation introduced by Senators Chuck Grassley (R-IA), who is a cosponsor of this bill, and Kent Conrad (D-ND).

“This is thoughtful, responsible legislation that addresses the need for sound budget policy with progressive and innovative strategies for creating jobs and ending America’s addiction to imported oil,” said RFA President and CEO Bob Dinneen. “This bipartisan, forward-looking approach stands in stark contrast to other Senate gimmicks that would seek to end America’s efforts to replace imported oil with domestically-produced renewable fuels like ethanol. America’s entire ethanol industry stands in support of this effort and is proud to work with these Senate leaders to proactively offer responsible reform ideas and seek to see this bill become law through following the proper legislative process.”

Original cosponsors of the bill include: Senators Grassley, Tom Harkin (D-IA), Mike Johanns (R-NE), Ben Nelson (D-NE), Richard Lugar (R-IN), Tim Johnson (D-SD), John Hoeven (R-ND), Al Franken (D-MN), and Jerry Moran (R-KS).

The RFA also points out that this substantive effort varies greatly from the political gamesmanship and legislative shenanigans that defines the crusade of oil-patch senators to end America’s efforts to develop renewable alternatives to imported oil.

The RFA reaction to efforts by Sen. Tom Coburn (R-OK) and 15 other Senators who all voted against an effort to remove oil industry subsidies can be read here and here.

New Ethanol Bill Faces Automaker Resistance

By Edward Niedermeyer on April 7, 2011

How things change in a few years! Just a few short orbits of the sun ago, automakers like GM were some of the biggest boosters of ethanol subsidies. Now, the Detroit News reports

The Alliance of Automobile Manufacturers – the trade association representing General Motors Co., Ford Motor Co., Chrysler Group LLC, Toyota Motor Corp. and eight others – opposes a bill sponsored by Sen. Tom Harkin, D-Iowa, that would require 90 percent of all vehicles to run on E85 – a blend of 85 percent ethanol – by the 2016 model year.
Shane Karr, vice president for government affairs, said the mandate “would cost consumers more than $2 billion per year” for flex fuel vehicles if automakers passed on the full cost “even though consumers will have little or no access to alternative fuels. Therefore, such a mandate is essentially a tax with little consumer benefit.”

In the face of this new opposition, the Renewable Fuels Association has even taken to employing the rhetoric of market economics to justify market-manipulating ethanol subsidies. And it doesn’t seem to be convincing anyone. If anything, Harkin’s bill may just hasten the death of existing subsidies, which are under pressure as both Democrats and Republicans seek to trim the federal budget.

Bill Clinton Warns Farmers That Ethanol Could Lead To Food Riots

WASHINGTON — Former President Bill Clinton on Thursday warned farmers that using too much corn for ethanol fuel could lead to higher food prices and riots in poor countries.

Clinton told farmers and Agriculture Department employees that he believes producing biofuels such as corn-based ethanol is important for reducing U.S. dependence on foreign oil. But, he said, farmers should look beyond domestic production and consider the needs of developing countries.

"We know that the way we produce and consume energy has to change, yet for farmers there are no simple answers," he said. "There is a way for us to do this and to do it right."

Clinton's foundation has worked to develop agribusiness in African countries such as Malawi and Rwanda. He said the United States needs to look at the long term, global effects of its farm policy.

"I think the best thing to say is we have to become energy independent, but we don't want to do it at the cost of food riots," Clinton said.

At the department's annual Agricultural Outlook Forum, chief economist Joseph Glauber said food prices are expected to rise this year and corn use for ethanol will continue to grow. He said 37 percent of all U.S. corn production could be used for ethanol by 2012.

The ethanol industry long has said that its production does not significantly drive up food prices and that the price of corn contributes to a tiny percentage of every food dollar.

"The driver behind rising food prices has been and remains oil," said Matt Hartwig of the ethanol industry group Renewable Fuels Association. "Rising oil prices, even before the unrest in the Middle East and Northern Africa, have made everything we buy from food to clothes to oil more expensive."

Other industries have contended that ethanol contributes to food price spikes, affecting their bottom lines and consumers, too.