Senate deals setback to ethanol industry

  • Article by: JIM SPENCER , Star Tribune
  • Updated: June 17, 2011 - 6:27 AM

The reversal of an earlier Senate vote stunned backers of the credit trying frantically to craft a compromise.

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Randy Doyal, CEO of The Al-Corn ethanol plant in Claremont, Minn. watches as distillers grain piles up in a storage area before it is sold and trucked away for animal feed.

Photo: Glen Stubbe, Star Tribune

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WASHINGTON - Two days after deciding to preserve a $5.7 billion tax credit for the ethanol industry, the U.S. Senate reversed itself in dramatic fashion Thursday, striking down by an overwhelming margin the subsidy aimed at corn farmers and ethanol producers.

Senators voted 73-27 to immediately kill the ethanol tax credit and strip away a tariff on imported ethanol, opening domestic ethanol makers to more foreign competition. While the elimination of the credit is part of a broader bill that may not be approved, the vote was seen as a strong shift in sentiment against an industry that in Minnesota is a $3 billion player supporting 8,000 jobs and consuming one-third of the state's corn crop.

Proponents of the tax credit say its swift end would be a blow to farmers and ethanol producers.

"We all agree that it's time to reform the [ethanol] credit," Minnesota Democratic Sen. Al Franken said. "But this is a rash and irresponsible way to do it."

The amendment to cut the credit was reintroduced Thursday by Sen. Diane Feinstein, D.-Calif., as one of many additions to a broad spending bill. The amendment had been rejected in a 60-40 vote two days earlier.

Feinstein told her Senate colleagues Tuesday that the amendment would have prevailed in the first vote if her co-sponsor, Sen. Tom Coburn, R-Okla., had not used a parliamentary maneuver to force the matter with only five days notice. Two days later, she proved herself correct.

The 43-vote turnaround showed the growing pressure to cut costs as lawmakers wrestle with how to manage the growing national debt. The General Accountability Office has pronounced the tax credit unnecessary because the ethanol industry already receives subsidized support through mandated fuel quotas. The Congressional Budget Office also targeted elimination of the credit as a way to inject roughly $3 billion in cash into the federal budget in 2011.

Along with Franken, Thursday's legislative U-turn left U.S. Sen. Amy Klobuchar, D-Minn., on the losing side of the vote. Klobuchar began negotiations to try to salvage a phase-out of the ethanol tax credit, an option she and South Dakota Republican Sen. John Thune proposed on Monday.

"It doesn't really come as a surprise," Klobuchar said of Thursday's turnaround. The ethanol tax credit was destined to disappear -- it was just a matter of how fast, she noted. Klobuchar spoke moments before heading into a meeting with Coburn and Feinstein to try to negotiate the issue.

Still, Klobuchar and Franken acknowledged a phase-out option may be dead.

Lawmakers from both parties have called for an end to the ethanol credit, which provides incentives for companies that blend ethanol with gasoline. Still, the political fallout from the two votes might fall more heavily on Republicans, according to Norman Ornstein, a congressional analyst with the American Enterprise Institute.

Some in the GOP see ending tax credits as tax increases, Ornstein said. But the decision by many Republicans to end the ethanol credit is a sign they will break with party orthodoxy, and it could mean similar votes to come on subsidies for other energy industries such as oil and gas, Ornstein added.

"There is enormous pressure to do something about the deficit," he said.

In a statement after Thursday's vote, Feinstein hinted at the same prospect: "We must be serious about addressing the debt and deficit, and this is a good first step."

The Renewable Fuels Association (RFA) which lobbied extensively to keep the ethanol credit, called Thursday's vote a "freebie." Like Klobuchar, the RFA said the amendment was attached to a spending bill that will never become law. "Our industry is ready to work in good faith to pass legislation like that proposed by Senators Thune and Klobuchar that achieves immediate budget savings, pays down the federal debt by $1 billion and continues the expansion and evolution of America's ethanol industry," an RFA spokesman said.

U.S. Agriculture Secretary Tom Vilsack cautioned that the new amendment could cost jobs and "lead to less choice for consumers and greater dependence on foreign oil."

Regardless of whether the spending bill becomes law, Thursday's amendment represented an overwhelming break with ethanol interests that will affect all future negotiations. The only real leverage Klobuchar and Thune have left is their proposal to use $1 billion from the remainder of this year's ethanol credit to reduce the budget deficit. They propose to spend another $1.5 billion of the remaining credit to build blender pumps and storage tanks to distribute ethanol-infused gasoline.

On Thursday, Sen. John McCain, R-Ariz., proposed an amendment that would have prohibited spending money on blender pumps and tanks. It failed, but a similar bill passed in the House.

A coalition of oil and environmental groups welcomed the news that the tax credit was voted down.

"We're really happy here," said Sheila Karpf of the Environmental Working Group. "We see this as a victory for soil and water over the corn/ethanol lobby."

Franz Matzner of the Natural Resources Defense Council added: "The Senate made clear today that corn ethanol's days at the public trough are numbered."

Jim Spencer • 202-408-2752

MINNESOTA ETHANOL INDUSTRY

21

Ethanol plants

1,117 million gallons*

Ethanol production

$3.1 billion*

Economic impact

8,395*

Ethanol jobs

*projected 2010 numbers from July 2010.

Minnesota Department of Agriculture as of July 2010

CORN UTILIZATION

The Minnesota Department of Agriculture estimated the state would produce 400 million bushels of corn or one-third of the state's corn crop for the estimated 1,117 million gallons of ethanol it expected to produce in 2010.

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