WASHINGTON -- The Senate voted overwhelmingly on Thursday to eliminate billions of dollars in support for the U.S. ethanol industry, said Reuters. Also, the U.S. House of Representatives voted on Thursday to prevent funding for ethanol blender pumps at gas stations, while the Senate voted to preserve it.
The 73 to 27 Senate vote to end the subsidies may ultimately be symbolic since the White House has vowed not to repeal ethanol subsidies fully and the bill the repeal language is attached to is not expected to make it into law. But it underscores the growing desperation [image-nocss] to find savings in a budget crisis that is forcing both sides of the aisle to consider sacrificing once-sacred government programs, said the report.
"Ending this wasteful handout would ensure taxpayers no longer subsidize the already profitable corn ethanol industry," Senator Frank Lautenberg (D-N.J.) said.
The Senate vote shows the odds are diminishing that the 45-cent-a-gallon subsidy the government gives refiners and the 54-cent-per-gallon tariff on imported ethanol--both targeted in Thursday's vote--will be extended at current rates beyond their scheduled expiration at the end of this year.
The Senate measure still faces a long road to becoming final, the report said. The White House issued a statement saying it was against a full repeal of ethanol subsidies, indicating it could use its veto power if the amendment continued to advance in Congress.
"We need reforms and a smarter biofuels program, but simply cutting off support for the industry isn't the right approach," Agriculture Secretary Tom Vilsack said. (Click here to view the complete statement.)
The strong vote in favor of eliminating the $6 billion a year in ethanol subsidies reflects the push by both parties to rein in the government's huge deficit, the report said. "The way we get out of trouble as a nation is a couple of billions of dollars at a time," said Senator Tom Coburn (R-Okla.), who co-sponsored the ethanol amendment.
The Senate vote also comes as criticism mounts globally over subsidies for corn-based ethanol, blamed by some for raising food costs, Reuters said. While more ethanol is good for corn farmers, U.S. livestock producers argue their feeding costs have gone up, which has raised food prices for consumers.
While a loss of subsidies may hurt profits for companies such as Valero and Marathon Oil that blend ethanol into gasoline, it would be unlikely to cause a large or sudden fall in ethanol output, said the report. Fuel companies must still blend a minimum of 12.6 billion gallons of ethanol into the gasoline pool this year under the federal Renewable Fuels Standard. Current output is running at less than 10% above that rate.
But the prospect of an even modest reduction in demand has helped drive Chicago corn prices more than 12% lower last week, pulling them down from a record near $8 a bushel two weeks ago.
Traders are betting on reduced demand from ethanol makers whose profit margins are being squeezed by near-record corn costs and falling gasoline prices, in addition to the longer-term risk of reduced government support, the report said.
The Brazilian Sugarcane Industry Association welcomed the Senate vote. "Allowing other alternative fuels like sugarcane ethanol to compete fairly in the U.S. will save Americans money, cut dependence on Middle East oil and improve the environment," the trade group said. (Click here to view the complete statement.)
The U.S. Renewable Fuels Association called the vote shortsighted and said it did not make sense given that the Senate voted less than a month ago to keep billions of dollars in tax breaks for big oil companies that are making record profits. (Click here to view the complete statement.)
Senate Majority Leader Harry Reid (D-Nev.) asked his Republican colleagues who voted down the ethanol subsidies also to end government financial breaks for oil companies.
U.S. lawmakers are working on other compromise measures to scale back ethanol subsidies, Reuters said. Sen. Charles Grassley (R-Iowa) and fellow Sen. Kent Conrad (D-N.D.) have introduced legislation to continue the blender tax credit and import tariff at much lower rates for five years.
On Tuesday, the Senate fell far short of the 60 votes needed that would have stripped the industry of federal incentives.
The ethanol subsidy amendment on Thursday from Coburn and Sen. Dianne Feinstein (D-Calif.) will be tacked on to an underlying economic development bill, which faces a difficult time passing the Senate.
Meanwhile, the House voted 283 to 128 to prevent Agriculture Department funding for tanks and blender pumps that the ethanol industry wants so gas stations can sell gasoline with higher ethanol blend rates.
The Senate took the opposite view, voting 59 to 41 on Thursday against a proposal that would have blocked federal funds to help pay for ethanol blender pumps and storage tanks at retail stations.
Without a significant supply of the new dispensers at retail stations around the country, the government's recent approval of the higher blend of 15% ethanol to gasoline could be meaningless, said Reuters.
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