Ethanol tax credit likely to survive Senate repeal vote

The U.S. Senate recently dealt a psychological blow to the ethanol industry by voting to repeal a federal tax credit for ethanol producers. The credit provides a 45 cents-per-gallon tax incentive to qualifying ethanol blenders of pure ethanol blended with gasoline.

Sen. Ron Johnson (R-Wisconsin) voted in favor of the repeal of the ethanol tax credit. Sen. Herb Kohl (D-Wisconsin) voted against the repeal of the tax credit.

Despite the 73-27 Senate vote to kill the ethanol tax credit, observers say the repeal is unlikely to occur in the immediate future.

President Barack Obama’s administration opposes the repeal.

“We need reforms and a smarter biofuels program, but simply cutting off support for the (ethanol) industry isn’t the right approach,” said Agriculture Secretary Tom Vilsack. “Therefore we oppose a straight repeal of the (ethanol tax credit) and efforts to block biofuels infrastructure programs.”

Meanwhile, the House of Representatives is currently focused on the debt ceiling negotiations and appropriation bills and is in no rush to pass a bill to kill the ethanol tax credit, although similar legislation has been introduced there, said Kevin Seifert, spokesman for Rep. Paul Ryan (R-Janesville).

“There doesn’t seem to be the urgency to move this tax credit amendment through,” Seifert said. “From what we’ve heard, it doesn’t really look like it’s going to move forward, but that could certainly change. It could be something that’s brought up in the next two to three weeks.”

Still, the vote by the Senate could be a sign that political support for ethanol subsidies is waning.

“The ethanol industry in Wisconsin certainly understands that, given the current economic conditions, the future of the credit the way it is set up right now probably won’t last,” said Joshua Morby, executive director of the Wisconsin Bio Industry Alliance.

The Renewable Fuels Association issued a statement calling the Senate ruling disappointing but inconsequential.

“We are disappointed in the shortsightedness of this vote, particularly as this same body voted less than one month ago to preserve billions of dollars in taxpayer handouts to the oil industry,” the organization said in a statement. “As the underlying bill to which this amendment is attached is unlikely to make it to the president’s desk, this vote was a freebie with no real consequences. With this theater now in the past, the ethanol industry stands ready to work with the Senate, House, and the Obama Administration to enact thoughtful policies that responsibly address fiscal concerns while moving American ethanol production forward. America needs an energy agenda that embraces the energy technologies of the future, not the energy politics of the past.”

Wisconsin ranks ninth in the nation in ethanol production with overall capacity of more than 500 million gallons. There are nine large-scale ethanol plants in the state. In 2010 Wisconsin’s $1.2 billion ethanol industry produced 462 million gallons of ethanol, Morby said.

“Wisconsin is one of the top ethanol producing states in the nation, and is a leader in advanced bio-fuels,” said Kohl. “Alternative fuels like ethanol are an important component to reduce our dependence on foreign oil, and with oil at $100/barrel, ethanol helps consumers in the Midwest save at the pump.”

Although most senators oppose the ethanol subsidy, the Senate in May blocked a bill that would repeal about $2 billion a year in tax breaks for oil companies.

“The ethanol industry is willing to have a discussion regarding the future of energy subsidies, but the way policy makers arbitrarily select winners and losers and to arbitrarily pick on an industry that has more than a billion dollars of economic impact in the state of Wisconsin is not something our industry agrees with,” Morby said.

Johnson was the only senator representing one of the top 10 ethanol-producing states in the country to vote in favor of the ethanol tax credit repeal.

“My sincere desire is for Wisconsin’s ethanol plants to succeed and thrive in a competitive, free-market environment. Ultimately, success in the free market is the only way businesses can provide long-term, self-sustaining jobs,” Johnson said. “This year, the government requires that almost 14 billion gallons of bio-fuels be used in gas. That will increase to 36 billion by 2022. There are very few industries that receive that kind of support from the government. Hopefully, that should be sufficient. One of the reasons for the 45 cent per gallon blending subsidy was to help ethanol producers build processing plants and infrastructure. That has been accomplished. Too often in Washington, once a subsidy is granted, it never goes away. It is that ‘business as usual’ approach that is bankrupting our nation. Clearly, business as usual must change.”

Under current law, the incentive is due to expire at the end of this year.

Sen. John Thune (R-South Dakota) and Sen. Amy Klobuchar (D-Minnesota) also have written legislation to end the current ethanol tax credit, but would replace it with a variable tax credit at a reduced rate to ensure support for ethanol in the instance of low oil prices. Ethanol blenders would be eligible to receive a tax credit of 30 cents per gallon when oil prices are $50 per barrel or less. When oil prices are $90 per barrel or more, ethanol blenders would receive no incentive. The ethanol groups and the National Corn Growers Association have endorsed the bill, as have 13 other senators including Kohl.

The Renewable Fuels Association also supports the new proposal.

“Our industry is ready to work in good faith to pass legislation like that proposed by Senators Thune and Klobuchar that achieves immediate budget savings, pays down the federal debt by $1 billion, and continues the expansion and evolution of America’s ethanol industry,” the organization said in a statement.

“It is safe to say from an ethanol industry standpoint that we all agree there is going to be some type of modification of the tax policy that exists,” Morby said. “What those changes are continues to be a moving target, but more importantly it’s important to us that our representatives have an understanding of what the ethanol industry means for the state and that we have their support in Washington. As it stands, I think it’s fair to say that the ethanol industry doesn’t feel like they have the support they need from Senator Ron Johnson.”

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