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 Forty-eight percent of Insiders said ethanol subsidies should be repealed today, while 45 percent said they should be gradually phased out over a period of five years.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.”
Gradually phase them out over five years
“With a transition to a variable tax credit tied to the price of oil. At today’s prices, for example, no tax credit would be available.”
“My preference, not listed here, would be to eliminate them for conventional ethanol immediately, and offer them only for second-generation biofuels and biodiesel.”
Don’t end them
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.
Insiders, who also voted on oil and gas subsidies, were overwhelmingly in favor of eliminating them.
Though just last month, the Senate was not able to vote through a plan to cut the oil and gas industry tax breaks, Insiders still maintained that they should be examined.
Asked whether Congress should roll back some federal oil and gas industry tax breaks in the context of a broader tax reform package, 77 percent of Insiders said yes, arguing that “grants and mandates for all forms of energy are on the chopping block.”
Some Insiders reiterated an argument made numerous times by lawmakers in both chambers—that the government’s fiscal crisis coupled with the high earnings reports from the oil and gas industry signal that the subsidies should be cut.
Still, most Insiders supported the notion that if oil and gas subsidies go, so should all tax breaks for the oil and gas industry.
“If Congress is serious about addressing the deficit, and if the administration is serious about shifting to a clean-energy economy, subsidies for the oil and gas industry have to end. Similarly, subsidies for ethanol should be phased out to allow corn producers to make the shift,” one Insider said.
Insiders argued that treating the oil and gas sector differently in the tax code is unnecessary.
“The items mentioned as oil-and-gas-industry deductions are actually generic tax treatments. Maybe we need to overhaul the tax laws, but we shouldn’t deny economy-wide or manufacturing-wide deductions for just one industry,” one Insider said, while others assured that such cuts would result in more pain at the pump.
Should Congress roll back some federal oil and gas industry tax breaks in the context of a broader tax reform package?
- Yes 77%
- No 23%
“Hard to justify given the government’s fiscal crisis and the earnings reports from the oil and gas companies—the O&G guys should step up and offer a sliding-scale alternative tied to the price of oil and gas.”
“Yes, to the extent that all 'tax breaks' (credits, deductions, or direct grants for that matter) are eliminated and everything and everyone is placed on an equal tax footing.”
“We provide subsidies for oil and gas, which makes the market price of those fuels lower than it would otherwise be. That means that subsidies for renewable fuels become necessary so that their prices can compete with oil and gas. In other words we pay twice, all with taxpayer dollars, for the same result. That’s pretty crazy.”
“Oil and gas production is profitable enough that elimination of these tax preferences should not measurably affect production activity, domestic production, or fuel prices, and the revenues can help pay for tax reform.”
“Yes, provided the subsidies, tax deductions, grants, and mandates for all forms of energy are on the chopping block as well.”
“Yes, but direct the revenues to clean technology”
“Unless the goal is to raise the price of gas at the pump in order to incentivize the purchase of more fuel-efficient cars. If that is the case—then yeah—raising taxes on oil companies would be a pretty good method to accomplish that end.”
“It makes no sense to treat this sector different than any other business in an effort to serve a political agenda. If Section 199 will be taken away from all manufacturers in exchange for a lower statutory and effective rate, this would make a lot more sense.”
National Journal’s Energy and Environment Insiders Poll is a periodic survey of energy policy experts. They include:
Jeff Anderson, Paul Bailey, Kenneth Berlin, Denise Bode, Kevin Book, David Brown, Neil Brown, Stephen Brown, Kateri Callahan, McKie Campbell, Guy Caruso, Paul Cicio, Douglas Clapp, Eileen Claussen, Steve Cochran, Phyllis Cuttino, Kyle Danish, Lee Dehihns, Robbie Diamond, Bob Dinneen, Sean Donahue, Jeff Duncan, John Felmy, Mike Ference, David Foster, Josh Freed, Don Furman, Paul Gilman, Richard Glick, Kate Gordon, Chuck Gray, Jason Grumet, Christopher Guith, Lewis Hay, Jeff Holmstead, David Holt, Skip Horvath, Bob Irvin, Bill Johnson, Gene Karpinski, Joseph T. Kelliher, Brian Kennedy, Kevin Knobloch, David Kreutzer, Fred Krupp, Tom Kuhn, Mindy Lubber, Frank Maisano, Drew Maloney, Roger Martella, John McArther, Mike McKenna, Bill McKibben, David Miller, Kristina Moore, Richard Myers, Aric Newhouse, Frank O'Donnell, Mike Olson, T. Boone Pickens, Thomas Pyle, Hal Quinn, Rhone Resch, Barry Russell, Joseph Schultz, Bob Simon, Scott Sklar, Bill Snape, Jeff Sterba, Christine Tezak, Susan Tierney, Andrew Wheeler, Brian Wolff, and Todd Young.
This article appears in the June 15, 2011, edition of NJ Daily.