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Ethanol faces showdown Tuesday

DANIEL LOOKER Updated: 06/14/2011 @ 9:27am Business Editor

Ethanol lobbyists and farm groups are urging members of the U.S. Senate to vote against an amendment that Senator Tom Coburn (R-OK) is expected to offer Tuesday that would end the 45 cent-a-gallon blenders credit for ethanol almost immediately--by July 1.

Instead, many groups are circling the wagons around a new bill introduced Monday by a bipartisan group of senators led by Amy Klobuchar (D-MN) and John Thune (R-SD).

The bill, called the Ethanol Reform and Deficit Reduction Act, switches the ethanol tax credit on July 1 to a variable rate subsidy that wouldn't kick in until oil prices fall below $90 a barrel. Think of it as swapping direct payments on your corn ground for counter-cyclical payments.

Under the Thune-Klobuchar plan, the tax credits to companies blending ethanol into gasoline would be modest, just 6 cents a gallon when light sweet crude on the New York Mercantile Exchange falls below $90 a barrel for three months. For each $10 drop in oil futures prices, the tax subsidy rises in 6-cent increments, until it hits a maximum of 30 cents a gallon when prices are $50 a barrel or less.

This is switch from a bill offered in May by Senators Chuck Grassley (R-IA) and Kent Conrad (D-SD) that would have given ethanol blenders a fixed tax credit for two more years (20 cents the first year and 15 cents the next) before switching to a variable tax credit.

But, as the National Corn Growers Association explained Monday, "due to increasing budget concerns, the ethanol industry and this bipartisan group of senators felt the need to review potential savings of moving towards reform immediately."

The new variable rate tax credit would also fall by 2 cents each year after 2011, ending in 2014.

The bill would free up $2.5 billion, NCGA said, with $1 billion going to deficit reduction and the rest to supporting blender pumps and ways to improve market access for ethanol.

“The Ethanol Reform and Deficit Reduction Act comes at a time when we are proactively trying to reform the ethanol industry, unlike the oil and gas industry,” said NCGA president, Bart Schott of Kulm, North Dakota.

Grassley supports the new bill, along with a bipartisan group of midwesterners: Dan Coats (R-IN), Mike Johanns (R-NE), Tom Harkin (D-IA), Richard Lugar (R-IN), John Hoeven (R-ND), Tim Johnson (D-SD), Claire McCaskill (D-MO), Jerry Moran (R-KS), Ben Nelson (D-NE), Al Franken (D-MN), Richard Durbin (D-IL) and Mark Kirk (R-IL).

Fiscal conservative Lugar has been pushing to switch to a variable tax credit since 2006.

“It is past time for the next phase of innovation. I am delighted that more colleagues are now willing to join in reform efforts," Lugar said in a statement Monday. "I commend Senator Thune for spearheading this bill.”

The Thune-Klobuchar bill also has the support of the ethanol lobbying group, Growth Energy.

CEO Tom Buis said, “Sens. Thune and Klobuchar are proposing a fiscally-responsible bill that reforms ethanol tax policy in a manner that creates U.S. jobs, gives American motorists a choice at the pump, reduces our nation’s dependence on foreign oil and encourages the development of ethanol from next-generation feedstocks, such as cellulosic biomass."

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