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Symbolic Senate Ethanol Vote Shows Support Waning

DC Dialogue

Ethanol industry still hoping for phased-out transition of tax credits despite Senate vote to repeal VEETC.

Published on: June 17, 2011

Thursday the Senate sent a blow to ethanol supporters as it approved an amendment introduced by Sen. Tom Coburn, R-Okla., and Sen. Diane Feinstein, D-Calif., to immediately repeal the Volumetric Ethanol Excise Tax Credit and the tariff on imported ethanol. The vote was merely symbolic though, as any revenue amendments must originate in the House and not the Senate.

On Tuesday, June 14, Coburn’s amendment, which needed 60 votes to move forward on debate, failed on the Senate floor with 59 votes against and only 40 votes in favor. A broad coalition of groups ranging from budget hawks to livestock groups said it is “confident of eventual success” of the proposal included in Coburn’s amendment stating that the vote ended up “being about process rather than substance and prevented a positive outcome at this time.”

That came true Thursday when Feinstein reintroduced the bill and it passed by a margin of 73-27. Last year, 81 senators voted to extend the blender’s credit for one year.

Sen. Jon McCain, R-Ariz., filed an amendment aimed to limit funding for ethanol expansion by prohibiting the U.S. Department of Agriculture from using funds for the installation of blender pumps. That amendment did not pass in the Senate.

The Obama Administration continues to say it is “opposes a straight repeal of VEETC and efforts to block biofuels infrastructure programs."

Thursday the U.S. House of Representatives again approved an amendment by Rep. Jeff Flake, R-Ariz., that would prohibit the USDA from allocating funds for ethanol infrastructure, including blender pumps and storage facilities. Flake’s amendment was passed by a majority of 283 to 128, 22 more votes than it did when it originally passed the House in February. 

Although an important marker for support of ethanol Congressional support, the amendment is “dead on arrival” once it lands in the House, noted Sen. Chuck Grassley, R-Iowa, in a floor speech shortly before the vote.

“These amendments [introduced by McCain and Coburn] won’t save the taxpayer any money, because they stand little chance of being enacted,” Grassley said, adding the bill is not likely to be taken up by the House. “If a revenue amendment is attached to this bill, it will be blue-slipped by the House.”

The Constitution requires that revenue measures originate in the House. “So, this bill, with these amendments, is dead on arrival,” he added.

National Cattlemen’s Beef Association (NCBA) president Bill Donald said the vote represents a “giant step toward leveling the playing field for a bushel of corn.” He added, cattlemen “aren’t opposed to ethanol” but “will continue supporting this and other efforts to end taxpayer support of an industry that should be able to survive on its own.”

Time for change

Ethanol industry groups are taking notice that a legislative fix may not be able to wait until the end of the year and are lobbying for a phased transition. An alternative plan, authored by Sens. John Thune, R- S.D., and Amy Klobuchar, D-Minn., calls for a gradual phase-out of the VEETC as soon as July 1, 2011.

Growth Energy, one lobbying arm of the ethanol industry, said the vote shows the time is right for change. The group first started lobbying last summer for a move away from VEETC and redirecting those funds toward ethanol infrastructure build out. The group is hopeful the Thune-Klobuchar bill can come to the Senate floor for a vote. Growth Energy is also working with members in the House to introduce a similar proposal.

Grassley and Sen. Kent Conrad, D-N.D., proposed legislation in May that phases out VEETC and transitions it to a variable tax credit based on the price of oil. The Thune-Klobuchar bill includes many of the same features, but it enacts the reforms this year.

In a statement, Secretary of Agriculture Tom Vilsack said President Obama supports biofuels.  “We need reforms and a smarter biofuels program, but simply cutting off support for the industry isn't the right approach,” Vilsack said.

Growth Energy chief executive officer Tom Buis said, “The fight is not over until we achieve real reform for the ethanol industry, but this vote sends a signal that there is a right way and a wrong way to go about it.”

After Growth Energy first proposed the reform idea, corn grower groups and the Renewable Fuels Assn. (RFA) were lukewarm to the idea. Now the industry is coming behind the premise of changing ethanol support and doing so by finding an approach that also provides a way to boost infrastructure funding so ethanol can better compete with oil.  

Jeff Broin, chief executive officer of the largest domestic ethanol producer POET, said, “Now it is time for the ethanol industry to take the next step in competing with oil. That can only happen if ethanol is allowed greater access to the fuel market. We must transition away from the tax credit and make a short-term investment that will reap long-term rewards. The expansion of flex pumps, dedicated ethanol pipelines and Flex Fuel Vehicles would create a competitive market between ethanol and gasoline that would lower prices at the pump.”