Deficit Woes Trim Support for Ethanol
Air Date: Week of April 8, 2011
Conservatives seeking deep cuts to the deficit have found a five billion-dollar target in the ethanol tax credit. As they work with environmentalists to defeat it, the corn ethanol industry pushes for compromise. Living on Earth's Mitra Taj reports from Washington on the politics of biofuels policy.
GELLERMAN: The nation’s corn-ethanol industry has long enjoyed deep-rooted political support in Washington that’s paid off handsomely. Pull up at the pump and federal law requires corn ethanol be mixed into the gas and blenders of the biofuel also get a boost from tax-credits - so do farmers - and a federal tariff on imports protects the industry from foreign competition.
But with Congress tightening its belt and fiscal conservatives flexing their muscles, support for corn-ethanol may be running out of gas. Living on Earth’s Mitra Taj reports from Capitol Hill.
TAJ: Opponents of ethanol say the time is ripe to stop subsidizing the biofuel. Getting rid of ethanol tax credits might sound like a long shot - they’ve been a part of the federal tax code since 1978 - until you hear the industry itself.
HARTWIG: I think it will be challenging to extend it as is, and it may very well cease to exist in the form it does today.
TAJ: Matt Hartwig is spokesman for the Renewable Fuels Association, an organization that, until recently, had been fighting to preserve the credit that pays 45 cents for every gallon of ethanol blended into gasoline. But times have changed.
HARTWIG: We understand that there are problems with the federal balance sheet, and we are engaged in discussions with the administration, with lawmakers on Capitol Hill, to figure out a way to reduce costs while still ensuring the industry can grow and evolve.
TAJ: Many environmental groups have fought the subsidy for years - they point to studies that show farming corn for fuel contributes to greenhouse gas emissions, higher food prices, and soil and water contamination.
But it’s fiscal conservatives who are giving that effort momentum. They cite studies too, like a recent Government Accountability Office report that says the ethanol tax credit is redundant because the EPA already mandates a minimum amount of ethanol production. Republican Senator Tom Coburn of Oklahoma says that makes selling his bipartisan effort to repeal the credit simple.
COBURN: We’re gonna spend five billion dollars more this year to pay large oil companies to blend gasoline with ethanol, which they're already required under the law - under the renewable fuels standards - to do.
TAJ: The ethanol tax credit is set to expire at the end of this year, but Coburn says Congress can’t afford to wait that long. He’s drawing on a coalition of more than 90 organizations, including a group of refiners that can benefit from the credit to push against the solid support of farm-state lawmakers. Coburn says he’ll file a motion to suspend the rules - a bold step that needs a two-thirds majority, or 67 Senators, for passage. He says he’s almost there.
COBURN: I wouldn't talk about my private conversations but I think…look, you cannot go home when we're running a 1.6 trillion dollar deficit and say I voted against saving five billion dollars through a tax credit that the people who are getting the tax credit don’t want and have sent a letter to Congress saying they don’t want - how do you defend that? Especially when we're borrowing the money to do it.
TAJ: The House is sending its own anti-ethanol signals. Two amendments to restrict federal spending on ethanol programs found a majority support there, and while the legislation they’re a part of has undergone negotiation, the executive branch has also hinted at change. In his recent energy security speech, President Obama touted the role of biofuels…
OBAMA: Not just ethanol but biofuels made from things like switchgrass.
TAJ: …in reducing imports of foreign oil.
OBAMA: And going forward, we should look for ways to reform biofuels incentives to make sure that they’re meeting today’s challenges and that they’re also saving taxpayers money.
TAJ: “Reform” is the wrong verb, says industry spokesman Matt Hartwig. He prefers “transform” and wants to see the current tax credit switched out for a variable credit, which would only kick in when ethanol struggles to compete with oil - like when oil prices are down.
HARTWIG: You know, when oil is at 100 dollars a barrel, you actually don't need a whole lot of extra incentive for companies to invest in alternative energy technologies and things like that - the market is doing that for them. But if OPEC decides, ‘Oh, we don't like this oil price, we're going to flood the market,’ well then here the price comes down and the will to move forward with alternatives sometimes begins to wane.
TAJ: Together with investments in service station blender pumps and flex-fuel vehicles that run on higher blends of ethanol, Hartwig says the industry can keep growing. And that's important, he says, because ethanol is the bridge to better biofuels - fuels made from switchgrass or garbage that are considered more sustainable.
But an advanced biofuels lobbyist says investments in ethanol infrastructure won’t do much for the newer fuels, which can replace gasoline with no new cars or pumps needed.
MCADAMS: The corn ethanol industry has made it very difficult for many of the advanced biofuels to have a fair hearing in the political marketplace.
TAJ: Michael McAdams, the president of the Advanced Biofuels Association, says the ethanol industry hasn’t shown an interest in helping.
MCADAMS: For them to draw over six billion dollars from American taxpayers and not even have a fair conversation with their colleagues in the advanced industry to suggest we might reallocate some of those resources to expedite commercial building of advanced facilities is a lot like the oil industry used to treat them. And they ought to know better.
TAJ: Policy analyst Sasha Lyutse with the environmental group the Natural Resources Defense Council says one solution might be a performance-based tax credit that welcomes any biofuel, whether its feedstock is switchgrass, corn, or algae.
LYUTSE: The greener biofuels tax credit that we've proposed is actually technology-neutral. It basically just sets performance standards, both in terms of greenhouse gas emissions and other environmental variables that we care a lot about - water use, biodiversity, things like that. So the point is that we have to be tying incentives to real, delivered, measurable, verifiable, environmental performance.
TAJ: Lyutse recommends immediately repealing the current tax credit as a first step. But today’s fiscally conservative fervor might not be enough to topple longtime ethanol supporters like Senator Chuck Grassley of Iowa. The Republican has managed to keep Tom Coburn’s amendment from the Senate floor so far and vows to round up enough Republicans to vote it down. For Living on Earth, I'm Mitra Taj in Washington.
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