Though the Senate on Tuesday shot down, 40-59, a vote aimed at repealing $5.4 billion in ethanol subsidies, the majority of National Journal Energy and Environment Insiders think that they need to go, either now or in the next five years.
The measure, sponsored by Sens. Tom Coburn, R-Okla., and Dianne Feinstein, D-Calif., was filed as an amendment to legislation reauthorizing the Economic Development Administration, but it faced a great deal of pushback from leadership and outside groups leading into the vote, who questioned the way in which it was brought to the floor.
Shortly after the vote, however, Senate Majority Leader Harry Reid, D-Nev., said that he is going to allow another vote on the measure a week from Friday. When it happens, it would come back-to-back with a vote on a competing measure from Republican Policy Committee Chairman John Thune, R-S.D., and farm-state Democratic Sen. Amy Klobuchar of Minnesota aimed at phasing out the subsidy over the next five years, according to a Reid aide.
While Feinstein told National Journal Daily on Tuesday that this next vote gives their measure “a fighting chance,” having the two votes side-by-side will put lawmakers in a difficult position in deciding which measure to hang their hat on.
National Journal Energy and Environment Insiders, in the same way, were split on what should happen to ethanol subsidies. Forty-eight percent of Insiders said ethanol subsidies should be repealed today, while 45 percent said they should be gradually phased out over a period of five years.
“End them now, at least for traditional corn-based ethanol. It is already supported by the renewable-fuel mandate and an import tariff. Artificially increasing the price blenders have to pay for a mandated feedstock is unquestionably bad policy,” one Insider said, arguing that this needs to be done now before a free-trade agreement with Colombia can make eliminating the subsidy even more politically difficult for Congress.
Just like this Insider, many who supported abolishing the subsidy immediately argued that the mandated market through the Renewable Fuel Standard for ethanol is enough of an incentive.
The 45-cent credit in question, however, is given for every gallon of ethanol blended into fuel at the pumps and is set to expire this year if Congress does not extend it again.
But though the majority of Insiders said ethanol subsidies should be eliminated now, many asserted that the more realistic option would be a five-year phase out.
“They should have eliminated them five years ago, but we will likely get a package that gradually fades them away,” one Insider said, while another explained that “politically necessity” will make a five-year plan more successful.
Meanwhile, only 7 percent of Insiders said they should not be phased out or eliminated at all.
“At a time when everyone seems to have a renewed interest in cheap fuel, it seems ironic that we are talking tough about reducing subsidies—even subsidies aimed at reducing our susceptibility to the price volatility of oil like ethanol,” one Insider said.
Still, many Insiders said that every energy subsidy should be on the table in a serious discussion about overhauling the tax code.
“If the Congress is going to take a hard look at tax expenditures and start closing them, it would be logical to start with those that involve high expenditures and low merit, such as ethanol tax credits,” one Insider said.
What should Congress do about federal ethanol tax credits?
- End them now 48%
- Gradually phase them out over five years 45%
- Don’t end them 7%
End them now
“Ethanol subsidies SHOULD be ended now, but a phase out may be the best we can hope for”
“There is already a mandated market for ethanol; it is hard to justify a tax credit as well.”
“The only rationale for federal ethanol policy is a political rationale—it makes no sense as energy policy. If the Congress is going to take a hard look at tax expenditures and start closing them, it would be logical to start with those that involve high expenditures and low merit, such as ethanol tax credits. Not sure Congress will do that, even in the current climate, but the Congress was what Congress "should" do, rather than a prediction of what Congress will do.”
This article appears in the June 15, 2011 edition of NJ Daily.
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