Bipartisan mood to kill ethanol subsidy grows in US Congress

09 March 2011 19:20  [Source: ICIS news]

WASHINGTON (ICIS)--A Republican and a Democrat senator on Wednesday joined a bipartisan group of House members in calling for an end to the 45 cents/gal subsidy for ethanol, citing a federal study that termed the programme unnecessary and costly.

Senator Benjamin Cardin (Democrat-Maryland) and Senator Tom Coburn (Republican-Oklahoma) said they would sponsor a Senate bill to kill the ethanol subsidy and also to eliminate the 54 cents/gal federal tariff on imported ethanol.

Their bill would mirror one already pending in the House of Representatives.

That measure, HR-426, the "Remove Incentives for Producing Ethanol Act (RIPE Act), was sponsored by five Republicans and one Democrat.

Cardin said the 45 cents/gal tax credit given to refiners and other fuel blenders for the ethanol they put in most US retail gasoline is “costly and ineffective”.

“Rather than underwriting ethanol subsidies that are causing food prices to skyrocket, we should be supporting American innovation in more sustainable alternative fuels,” he said.

Coburn said that the subsidy - formally known as the Volumetric Ethanol Excise Tax Credit (VEETC) - is “bad economic policy, bad energy policy and bad environmental policy”.

Both Coburn and Cardin cited a study issued earlier this month by the US Government Accountability Office (GAO), which said that the federal ethanol subsidy is part of some $100bn (€72bn) in duplicative or unnecessary federal spending.

The GAO study said that the ethanol subsidy would cost taxpayers about $5.4bn this year and would escalate to $6.75bn by 2015 if continued.

Cardin said that the study shows that the subsidy is not needed because US refiners are required by another federal law, the Renewable Fuels Standard (RFS), to blend ethanol into their fuels.

“The VEETC essentially provides free money for blenders who are already mandated by the RFS to blend ethanol into fuel,” he said.

The GAO analysis said that the subsidy was important in helping the US corn ethanol industry to get started, but it was no longer needed because “most of the capital investment in corn ethanol refineries has already been made”.

The Renewable Fuels Association (RFA) said that the Coburn-Cardin bill was a bad idea because “it would seek to make the pain Americans feel at the pump worse”.

RFA spokesman Matt Hartwig was referring to recent sharp increases in US retail gasoline prices, which the Department of Energy said this week could top $4/gal within a month or two.

Hartwig noted that the VEETC was due to expire at the end of this year.

“Instead of introducing a bill to eliminate a policy that is set to expire anyway, we would hope that Senators Cardin and Coburn would seek to work with American farmers and ethanol producers to expand production and commercialise new technologies to make America less reliant on imported oil,” he said.

The RFA and other bio-ethanol groups have argued that the ethanol subsidy was still needed to help producers develop non-food cellulosic ethanol at commercial scales, a technology that has yet to be realised at such levels.

The ethanol subsidy was already under fire in the last Congress, and the 45 cents/gal tax credit and the related tariff were only saved from elimination at the last minute at the end of last year.

With members of Congress under mounting public pressure to balance the federal budget and reduce the nation’s $14,000bn debt load, the ethanol subsidy might not survive into 2012.  

($1 = €0.72)

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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