A compromise deal that has been reached between ethanol opponents and farm state senators in Washington, D.C. would end broad federal subsidies for the renewable fuel but would preserve smaller, targeted tax breaks designed to help biofuels flourish. The compromise, announced July 7, would repeal the VEETEC tax credit starting August 1, 2011 if Congress approves it.
The existing tax credit, set to expire Dec. 31, gives blenders 45 cents for every gallon of ethanol they mix with gasoline, at a monthly cost of more than $400 million to the U.S. Treasury. Also, the 54-cent per gallon tariff on ethanol imports would expire July 31 under the proposed legislation, which would need U.S. House of Representatives approval as well.
The July 7 announcement comes less than a month after the Senate overwhelmingly opted to end the tax credit immediately. The 73-27 vote on June 16 marked a momentous shift away from federal assistance for an industry that has enjoyed over 30 years of government support. But the proposed repeal stalled in Congress after the June 16 vote, prompting lawmakers to strike a deal.
Senator Dianne Feinstein, a California Democrat who has led anti-ethanol efforts, negotiated the compromise with ethanol supporters Senator John Thune, a South Dakota Republican and Senator Amy Klobuchar, a Minnesota Democrat.
Iowa Corn Growers Association disappointed in ethanol compromise
The Iowa Corn Growers Association put out a press release expressing extreme disappointment in response to the July 7, 2011 announcement of the bipartisan compromise in the U.S. on federal ethanol tax incentives.
"The bill discontinues the tax credits for ethanol and eliminates the tariff," says Dean Taylor, president of ICGA and a farmer from Prairie City in central Iowa. "Corn ethanol interests voluntarily offered to reform the tax incentive to a variable credit so it would only kick in under harsh market conditions and we continue to be disappointed that tax credits for ethanol are under question while tax credits for other energy sources, including oil, go untouched."
Up to $280 billion in tax credits and subsidies go to the oil industry and $16 billion go toward the ethanol industry. "Currently, ethanol is approximately 10% of our nation's fuel supply and 20-25% of our domestic fuel production," says Taylor. "Studies on the impact of ethanol on prices at the pump support the fact that removing ethanol tax incentives will increase fuel prices for consumers. A recent study released by Iowa State University economists found that ethanol saved consumers in Iowa an average of $1.37 per gallon on fuel. Nationwide, the savings was 89 cents with an average family budget savings of $800 last year."
Ethanol tax credits are being attacked, while tax credits for oil are not
"We understand that the goal to cut the federal budget deficit is a driver in this ethanol subsidy debate. However, we expect there will be some changes in this proposed legislation and we appreciate the work in Congress by a few members, including Senator Thune of South Dakota, to support ethanol," Taylor adds.
"Everyone, Congress included, needs to think long-term about our nation's energy needs and consumption," emphasizes Taylor. "Cutting the legs out from under the corn ethanol industry is going to increase fuel prices for consumers and limit all domestic and renewable energy production from here on out."
ICGA policy supports a level energy playing field with proactive and fiscally responsible biofuels support, he says.
Iowa Senators Grassley and Harkin support the ethanol compromise
Iowa's two senators, Republican Chuck Grassley and Democrat Tom Harkin, issued statements supporting the compromise, with Grassley the less enthusiastic of the two. Here is the comment from Senator Grassley about the ethanol agreement announced by Senators Thune and Klobuchar:
"All things considered, it's good news that an agreement was reached that salvages some of the effort to reduce America's dependence on foreign oil. I wish it would have included a more robust investment in alternative fuel infrastructure and cellulosic ethanol. Overall, the fact that this happened in a vacuum, rather than in an even-handed debate over all energy tax incentives, will always be a raw deal, especially for taxpayers and renewable fuel producers," Grassley said.
Harkin praised Senate colleagues for "proposing this timely reform of ethanol policy," and he said biofuels will continue to grow in use as the best replacement for gasoline. "We need to support the expansion of biofuels, for our energy security, for cleaner air and for domestic economic development, by making sure higher blends of ethanol are available and by expanding the number of vehicles that can use higher blends."
Iowa Secretary of Agriculture Bill Northey sees some advantages
Iowa Secretary of Agriculture Bill Northey on July 8 issued a statement on the bipartisan agreement in the U.S. Senate to end the 45 cent federal tax credit for ethanol blenders and the tariff on ethanol imports on July 31, 2011 rather than on December 31, as called for under current law. He sees some advantages to working out a compromise now rather than risk letting the federal tax credits go ahead and potentially expire at the end of 2011.
The new agreement would direct two-thirds of the $2 billion in savings, about $1.3 billion, to deficit reduction for the federal budget, he notes. The remaining savings, around $668 million, would be used to support the installation of pumps that can sell higher blends of ethanol and other biofuels tax credits.
Commends ethanol industry for being proactive in phasing out tax credit
Northey says: "I commend the ethanol industry for taking the initiative to be proactive in phasing out the tax credit while working for improvements to our nations fueling infrastructure that will improve competition and make sure customers have fuel choices.
"Ethanol has been and is a vital asset to Iowa's economy and a tremendous benefit to customers by lowering gas prices, improving our environment and reducing our dependence on foreign sources of oil.
"It is important that ethanol be able to compete on a level playing field. I hope this is the start of an aggressive effort to increase choices for the consumer by encouraging more flex fuel infrastructure and an effort to examine and reduce the tax incentives enjoyed by the oil industry."