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Call to end ethanol support criticized

Agriculture.com Staff 10/02/2006 @ 10:08am

In early September, press reports indicated Secretary of Energy Samuel Bodman and Secretary of Agriculture Mike Johanns called for an end to ethanol subsidies.

The biggest one is a 51-cent-per-gallon break on the federal excise tax that blenders get when they mix ethanol with gasoline. It boosts the ethanol price by about 30 to 40 cents per gallon under typical market conditions. With ethanol production headed past 7.5 billion gallons in a year or two, that tax subsidy will add up -- to more than $3 billion.

Press reports that subsidies could soon be on the chopping block weren't quite accurate. Bodman has said several times this year that ethanol plants didn't need subsidies to be profitable at the high prices of last summer. But neither member of President George W. Bush's cabinet has called for a complete end to subsidies.

Here's what Johanns and Bodman said to the press on September 7, according to a U.S. Department of Energy (DOE) transcript:

"When I was chairman of the Governor's Ethanol Coalition, I gave a speech one time that -- I said the real success of the ethanol industry is going to be when we say it's financially, economically self-sufficient. That will be success for me. That's what we should be working to achieve," said Johanns.

Bodman added, "This industry is extremely self-sufficient."

Strong congressional support
When asked if Congress should end the tax incentive, Johanns said "it's there until 2010," and that he expects Congress to put a strong energy title in the next farm bill.

Influential members of Congress from farm states don't seem anxious to end the tax credit. Last summer, bills were introduced to extend it. And the recent crash in gasoline and ethanol prices makes the subsidy look better.

Senator Charles Grassley, R-IA, tells Agriculture Online that although he doesn't think the industry needs the tax credit forever, now isn't the time to end it. He says he'll push to keep a similar biodiesel tax credit when it runs out next year, "and if I get a chance to extend the ethanol credit next year, I'm going to." As oil prices fall, "that brings some certainty to the market that wouldn't otherwise be there," he adds.

Iowa Senator Tom Harkin, ranking Democrat on the Senate Agriculture Committee, agrees. "I still think we need that. We need that to have market access around the country," he says.

In early September, press reports indicated Secretary of Energy Samuel Bodman and Secretary of Agriculture Mike Johanns called for an end to ethanol subsidies.

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