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Signs of trouble for ethanol

One of the strongest supporters of ethanol in the U.S. Senate, Republican Chuck Grassley of Iowa, conceded Tuesday that last week’s vote to slow expansion of ethanol’s market by blocking EPA funds for E15 is a bad sign for support in Congress for the industry.

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When asked what it may mean for extending ethanol’s tax credit, currently at 45 cents a gallon, and the tariff on imported ethanol, which both run out again at the end of 2011, Grassley said, “I think we’ve got a big battle ahead of us.”

Oil, food industry and livestock groups are already trying to block in court EPA’s approval of higher 15% ethanol blends for newer cars. And Grassley complained that the food industry seems to be using ethanol as an excuse to raise prices, even on products like rice, which isn’t in short supply.

He said the industry is also hurt by disagreement among its lobbying groups over how fast to give up support for a tax credit in return for infrastructure that would speed ethanol’s access to markets, such as blender pumps (which were also blocked in an amendment added to the spending bill approved in the House of Representatives last week).

“If we go in divided, we’re going to be very, very weak,” Grassley said, “and I think we’re in a weaker position than we’ve been in for a while.”

Even Grassley said that he would vote for a Senate spending bill without funds for E15 if it was in a bill that would cut the federal deficit by taking federal spending back to the level of 2008.

“I would have to sacrifice almost anything to get to that point,” he said.

Grassley said he doesn’t expect the Senate to go along with cutting spending to those levels, setting Congress up for an impasse that could lead to a government shutdown when the continuing resolution that currently funds the federal government expires on March 4. Grassley said that in the Senate, he’s not hearing Republicans talking of a government shut down and that it’s Democrats who keep raising that possibility.

Another bit of pessimism showed up Monday in a speech to the National Ethanol Conference in Phoenix by Renewable Fuels Association president, Bob Dinneen.

After pointing out that ethanol has been under attack in Congress for decades and that the nation needs renewable fuels more than ever as the Middle East remains unstable, Dinneen pointed out that Congress still won’t end tax breaks for the oil industry.

“Congress does appear ready to end the ethanol tax incentive program, however. At least, end it in its current form and cost,” Dinneen said in a draft of his speech released by RFA. “Last December, with the committed leadership of Senator Chuck Grassley and President Obama, the Congress extended, for one year, the Volumetric Ethanol Excise Tax Credit – VEETC.  It is now set to expire at the end of this year.  But the message from that debate was unambiguous.  Our industry needs to work with Congress and the Administration to reform the tax incentive moving forward.  We will.  Indeed, I welcome a dialogue about the future of the ethanol tax incentive.”

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