Senate votes to preserve ethanol tax credit — at least for right now

WASHINGTON — Ethanol supporters fended off a move Tuesday to eliminate billions in federal tax breaks, but growing concerns about federal assistance for the industry could make the victory lap a short one.

The Senate voted 59-40 Tuesday to reject a proposal that would have abruptly ended the Volumetric Ethanol Excise Tax Credit (VEETC), which provides 45 cents every time a gallon of corn-based ethanol is blended with gasoline. It also would eliminate a 54 cent per-gallon tariff on imported ethanol, which comes largely from Brazil.

Montana’s two Democratic senators split, with Max Baucus voting to preserve the credit through the end of the year and Jon Tester opting to end it.

“Subsidizing corn ethanol with taxpayer dollars is expensive and energy inefficient,” Tester said in a statement following the vote.

He was one of only six Democrats to vote against the subsidy. The vote on the measure, an amendment to an economic development bill, got caught up in a procedural dispute that led some Democrats who want to end the ethanol subsidy to vote to keep it.

A bipartisan group of farm-state lawmakers argued that it was unfair for Congress to change the rules for an industry less than six months after extending the credit. They also that now — when gas is hovering close to $4 a gallon — is no time to abandon domestic biofuels.

“The price of gasoline would escalate up to a dollar more a gallon if the rug was suddenly pulled out from under this industry — and it is the only competition with oil,” Sen. Amy Klobuchar, D-Minn., said. In April, the Center for Agricultural and Rural Development at Iowa State University issued a report, partly funded by the Renewable Fuels Association, indicating that ethanol production has reduced the cost of a gallon of gas nationwide by 89 cents.

Once touted as the biofuel of the future, ethanol is increasingly under siege.

Environmentalists say its production pollutes the air and encourages the conversion of pasture into cornfields while small-engine makers say it harms their products. And grocers say it has driven up the cost of food as corn once used for cattle and chicken feed is now used more for fuel.

“Saving (billions) by curbing corn ethanol subsidies will shift our focus to more promising biofuels like cellulosic ethanol and oilseeds, which don’t compete with our food supply,” Tester said. About 40 percent of the nation’s corn crop is used to make ethanol.

Opponents of the ethanol subsidy were joined Tuesday by fiscal conservatives, who view the assistance as corporate welfare and contend there’s simply no room for the credit, which costs about $6 billion a year, given the government’s spiraling debt.

“This comes down to: Does the Senate recognize the amount of trouble we’re in, and are they willing to give up parochial interests?” Sen. Tom Coburn, R-Okla., the proposal’s author, said before the vote. “Are they willing to do what is necessary to put this country back on course?”

The tax credit expires at the end of the year, and even industry backers say there’s muted appetite in Congress to continue the program.

Farm-state lawmakers such as Klobuchar are proposing to let the VEETC credit expire, provided a portion of the savings is spent on incentives to spur development of ethanol infrastructure, such as pumps that could handle fuel blends with as much as 85 percent ethanol.

Few pumps outside the Midwest currently provide gas that has more than 10 percent ethanol, although the Obama administration recently approved the use of 15 percent ethanol blends for vehicles made after 2000.

Agriculture Secretary Tom Vilsack, the former governor of corn-rich Iowa, told reporters Monday that ending the tax credit would imperil thousands of jobs in rural America, where unemployment and poverty rates have historically been higher than in other areas of the nation.