Biofuels Reach a Turning Point
Corn ethanol takes center stage in the debate over ending tax-dollar support for renewable energy.
Coburn tried to force the issue in June by playing procedural games to get his bill voted on without Senate majority leader Harry Reid’s (D-NV) assent; Reid slapped him down and the Coburn bill failed. Feinstein brought her bill to the floor a few days later — identical legislation to Coburn’s — and it sailed to success.
A successful marriage
Sen. Amy Klobuchar (D-MN), and Sen. John Thune (R-SD), two senior senators from ethanol states, helped kill Coburn’s bill by announcing they had an alternative bill, one that would ratchet down the level of ethanol supports for two years, and then tie federal support to the world oil price. They are shooting to rejigger the ethanol game as soon as possible, as Klobuchar pledged to take at least $1 billion of the mid-year savings of about $2.5 billion and dedicate it straight to deficit pay-down. The rest of the savings would be used to install and/or convert blender pumps at gas stations (three-year tax credit), retain the Small Ethanol Producer Tax Credit and fund tax credits for cellulosic (no corn) ethanol. Feinstein embraced the Klobuchar-Thune bill on the floor, saying she hoped, ultimately, her bill and the new legislation would be married and passed by the Senate.
On July 7, Feinstein, Klobuchar and Thune announced they had a deal — Coburn walked away from the talks — and the new ethanol rewrite would end the 45-cent/gallon blenders’ tax credit on July 31 — no talk of ratcheting or world oil prices — and then eliminate the import tariff.
Two-thirds of the savings — or about $1.3 billion goes to deficit reduction — the big carrot for several members. This leaves about $668 million in savings to fund blender pumps, extend an existing alternative fuel station tax credit to include blender pumps through 2014 at 2011 funding levels; modify the credit for ethanol blends between E15 and E85; and clarify that the entire cost of dual-use blender pumps qualifies.
It extends the credit to electric charging stations and natural gas refueling stations. The small ethanol producer tax credit is extended through 2014 and is valued at about 7 cents/gallon, and only producers of less than 60 million gallons a year are eligible. The tax credit for cellulosic biofuels and the depreciation allowance for these fuels is expected through 2015, again using 2011 funding.
There’s been no final Senate vote on the Feinstein-Klobuchar deal, but Feinstein announced she wants it included in any debt ceiling/spending cut package that comes to the Senate floor, calling it “the best chance to repeal the ethanol subsidy.”
Extending the conversation
The ethanol industry grumbled a bit, said it would work for a “better package,” but behind the scenes was thumping itself on the back for having secured the Holy Grail — federal infrastructure money. The American Coalition for Ethanol (ACE), Growth Energy, the Renewable Fuels Assn. (RFA) and the National Corn Growers Assn. (NCGA) all praised Klobuchar and Thune for saving their bacon, publicly saying the politically correct things about “supporting homegrown energy” while making a “significant contribution to our nation’s deficit.”
And while critics of federal support for corn-based ethanol generally celebrated the deal as the first body blow to the ethanol lobby, the livestock and poultry industries pointed out the compromise still provides over $230 million in new federal support for the corn-based fuel. “We appreciate the work done … to end the VEETC and tariff,” a coalition statement said. “However, the resulting compromise still provides new federal funds for corn-based ethanol, money that would be better spent reducing the deficit or encouraging development of alternative energy sources that do not compete with feed needs.”
If the goal is to wean the ethanol industry off federal largesse, the Feinstein-Klobuchar deal is merely the first step, critics say, or as one analyst carefully put it: “It extends the conversation.”
Meanwhile, the House has not been idle when it comes to pounding nails into the ethanol support coffin. Language prohibiting USDA from spending federal dollars on infrastructure — the department had previously announced its own flexfuel blending pump loan program — was inserted in the House-passed FY2012 agriculture appropriations bill in June, and while this approach was blown off in the Senate, the move is a roadblock to the Feinstein-Klobuchar deal.
