Senate vote keeps ethanol tax credit alive

  • Article by: JIM SPENCER
  • Star Tribune
  • June 15, 2011 - 11:33 AM

WASHINGTON - The U.S. Senate on Tuesday chose not to kill a multibillion-dollar annual tax credit that now provides major support for ethanol producers and corn farmers in Minnesota and other states.

The measure failed, in part, because of an uprising among senators from Midwestern states that have invested heavily in ethanol. In Minnesota, for example, the industry adds $3 billion to the state economy, supports 8,000 jobs and uses a third of the state's corn crop to produce 1.1 billion gallons of biofuel each year, according to the state Agriculture Department.

Sen. Amy Klobuchar helped lead the fight against an amendment that would have immediately eliminated a 45-cent-per-gallon tax credit for companies that blend ethanol with gasoline. The proposal also would have removed a tariff on imports of foreign ethanol.

Sen. Tom Coburn, R-Okla., forced a vote on an amendment to a larger spending bill that would have eliminated the subsidy for a savings of roughly $3 billion to the federal budget. Coburn used a parliamentary maneuver to have his amendment considered with just five days' notice. The push produced a flurry of negotiating among senators and, in the end, the amendment received just 40 of the 60 votes it needed.

"It's one thing to let them phase out next year," Klobuchar told the Star Tribune. "But to just do it suddenly with five days' notice for an industry that employs 450,000 people in our country is just not the way we should be doing business."

Klobuchar, a Democrat, reacted to Coburn's surprise move by teaming with Sen. John Thune, R-S.D., to offer an alternative plan that designates $1 billion of this year's ethanol tax credit to deficit reduction and reduces the credit again next year before phasing it out by 2014.

Cutting the tax credit so quickly would have produced economic pain for consumers as well as ethanol producers, said Randy Doyal, chief executive of Al-Corn Clean Fuel, an ethanol plant in Claremont, Minn. "If the blender is not getting that credit, he's not going to pass it along to consumers," Doyal said. "People will see costs go up at the pump."

Opponents of the ethanol credit include an unusual coalition of oil and environmental interests. They believe government-mandated production quotas for ethanol already protect the industry on the supply side. A Government Accountability Office report called the credit unnecessary and a possible source of government savings, critics note.

"The ethanol tax credit is unnecessary, no matter what form it is in," said Sheila Karpf of the Environmental Working Group. "It's a waste of taxpayers' money."

Many senators, particularly those from the Midwest, disagreed. Coburn's amendment "would have been disastrous for Minnesota and for farmers across the country," said Sen. Al Franken, D-Minn. "Ethanol is one of our most viable alternatives to foreign oil, and we need to continue to support it because it uses homegrown American resources and provides thousands of jobs across rural America."

Procedure played a part in the measure's failure. The co-sponsor of Coburn's amendment, California Democrat Dianne Feinstein, voted against the amendment after Coburn refused her request to negotiate for another 10 days. "If it wasn't for the process, we'd have 60 votes," Feinstein told her Senate peers.

Karpf believes the battle isn't over and expects a new measure will be introduced to kill the credit.

Meanwhile, Klobuchar said she will not relent on her efforts to phase out the tax credit. The ethanol industry is offering to give up its subsidy, Klobuchar noted. "The [ethanol] industry has shown a willingness to pitch in, to give a billion dollars toward deficit reduction, something the oil companies haven't even considered."

Jim Spencer • 202-408-2752

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