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How the stars aligned for ethanol

In spite of the coverage you’re seeing of angry liberals in the House and of Senator Bernie Sanders’ (I-VT) filibuster in the Senate, the Obama-congressional compromise on extending tax cuts is very likely to pass, and the new law is almost certain to continue the ethanol tax credit for another year at the current rate of 45 cents a gallon.

This strong possibility wouldn’t even exist without several breaks for the industry, says an influential member of the House, a key Senate staffer and ethanol insiders.

First, when President Barack Obama’s chief of staff, Rahm Emanuel left last October to run for Mayor of Chicago, he was replaced at the White House by Pete Rouse as interim chief. Rouse once headed the staff for former Democratic Senator Tom Daschle of South Dakota, and is said to be supportive of the ethanol industry.

See more on the tax credit:

“Pete deserves credit for this. Thank God we’ve got him over there,” Representative Collin Peterson, a conservative Minnesota Democrat told Friday. “Pete knows this stuff. He knows all the issues and the politics. We couldn’t have anybody better over there [at the White House].’”

The ethanol industry had many strong advocates in the Senate fighting to get the ethanol tax credit included in the bill, Peterson said. They included Democrats Tom Harkin of Iowa and Amy Klobuchar of Minnesota, Kent Conrad of North Dakota. But the key player may have been Republican Chuck Grassley of Iowa. This is his last month as the ranking Republican on the Senate Finance Committee, and the timing couldn’t have been better for the ethanol industry since Grassley has long been one of its strongest champions.

Grassley was the one who fought hardest for keeping the tax credit at 45 cents. Earlier this year the House Ways and Means Committee considered a 36 cent credit, a 20% cut, and this month the Senate’s Democratic Finance Committee Chairman, Max Baucus of Montana, also introduced a tax bill with the credit at 36 cents.

“Grassley was probably the only one who made this a deal breaker,” Peterson told

Grassley had to convince members of his own party. Senate Minority Leader Mitch McConnell chose Jon Kyl of Arizona, an outspoken critic of ethanol tax credits, as his top negotiator on the tax bill.

But Kyl and the GOP still relied on the expertise of Grassley and his staff, who proved to be tough negotiators.

“Grassley was actually able to affect the deal, even though he wasn’t one of the six [top negotiators],’ a senior Republican Senate aide told Friday.

“The fact that McConnell, and Kyl and [Dave] Camp [the GOP Representative tapped to head the House Ways and Means Committee next year] would listen to Senator Grassley’s advice on this was significant,” he added.

Grassley and his staff convinced Kyl that all tax credits that expire at the end of this year should be treated the same, with no policy changes. “The only thing you can touch according to the agreement is the date” -- shifting the expiration of the 45 cent credit from December 31, 2010 to December 31, 2011, the GOP staffer said.

Kyl’s position after that, the staffer said, is that “we are going to litigate this in the light of day next year.”

Democrats, well aware that the tax credit will be under pressure, have been willing to lower the tax credit in exchange for getting support for blender pumps and flexible fuel vehicles, but putting that in legislation in the lame duck would be difficult this year, the staffer said. And money for that would come from different committees in Congress and different pots of money in the federal budget.

“We’re not going to be able to keep this forever,” Peterson said of the tax credit. “We can compete with ethanol if we can get access to the marketplace.”

That will be next year’s battle, one that lobbying groups like Growth Energy, American Coalition for Ethanol and the Renewable Fuels Association are already working on.

Meanwhile, Peterson predicts that the tax bill will pass the House after the Senate takes up the bill on Monday.

“We’ll pass it sometime next week,” he said. “It will be all done by next Friday I don’t think there’s as much drama as everyone is making out.”

In spite of the disaffected liberal Democrats who strongly oppose the compromise that keeps lower tax rates for the wealthy, Peterson doesn’t think they’ll be able to keep the House from voting on the bill.

“There’s enough of us sensible Democrats left in the House to pass this,” Peterson said. “A lot of our members don’t think they lost the election. I don’t think it’s sunk in yet.”

Peterson predicted that all of the Republicans in the House and 40 to 50 members of the Democratic Party will vote for the legislation.

And he agrees with the Senate staffer that the final tax credit level for ethanol will be 45 cents.


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