The $5 billion blenders credit for ethanol is on the chopping blocks for some senators seeking ways to trim the massive federal deficit. But the issue has created a firestorm of sorts within Republican ranks as other party leaders contend that eliminating the subsidy is tantamount to a tax increase.
Proposing elimination of the ethanol subsidy is conservative Senator Tom Coburn (R-Okla), who is working with a bipartisan group of senators on a plan to reduce government borrowing.
"This is definitely a concern," says Stephanie Dreyer, a spokesman for Growth Energy, an organization working with other pro-ethanol groups to make sure the blenders credit is maintained.
Her group is not opposed to terminating the tax credit longer term, but first, government aid is important to develop an infrastructure that will allow gasoline to contain more than 10% ethanol. Because the 10% ethanol blending "wall" is being approached, additional investment within the industry will not likely occur without additional investment by the government.
According to the April 15 Washington Post, Coburn’s narrow proposal to eliminate the blender’s credit pits him against orthodox Republicans who for decades have opposed any tax increase, including tax credits. Agreeing that the blender’s credit should go are conservative fixtures such as the Heritage Foundation and the Wall Street Journal editorial board.
Despite attacks from Coburn and others, the ethanol subsidy is likely to remain from the battle unscathed, numerous speakers said at last week’s Informa Economics Food and Agriculture Policy Summit.
The ethanol subsidy also may have significant support on the hill. Sen. Tom Harkin, (D-Iowa), has introduced the Biofuels Market Expansion Act, which would ensure an increasing number of automobiles in the U.S. be flexible fuel (capable of running on high level blends of ethanol) and expand the number of flex fuel pumps across the country.
In March, Sens. Amy Klobuchar, (D-Minn.), and Tim Johnson, (D-S.D.), introduced legislation with the acronym SAFEST. Their bill would not only establish a tax credit for ethanol and biodiesel, but would use tax incentives to encourage greater production of flex-fuel vehicles and the development of infrastructure to deliver ethanol.
On April 13, Brooke Coleman, executive director of the Advanced Ethanol Council said in testimony before the Senate Environment and Public Works Committee, that advanced ethanol will expand rapidly upon the market foundation being built by existing ethanol production if government policies allow advanced ethanol technologies to compete.
He warned against "backsliding" on current investments in domestic ethanol production and challenged what he termed the misperceptions of American’s ethanol industry.
"The advanced ethanol industry is in the first stages of building on the market established by conventional ethanol. What [advanced ethanol producers] need to meet expectations is the same type of tax treatment that the oil industry has enjoyed for decades."
Meanwhile, USDA is now accepting applications for federal REAP funds to help gasoline retailers install blender pumps to give consumers flexibility and choice in the ethanol blends they use. Originally announced last spring, USDA Secretary Tom Vilsack said on April 8 that the department is moving forward with plans to install 10,000 blender pumps over the next five years.