News & Resources

Ethanol Subsidies on the Chopping Block?

July 8, 2011

Last month, by an overwhelming vote of 73-27, the U.S. Senate overwhelmingly supported an immediate repeal of the Volumetric Ethanol Excise Tax Credit (VEETC) and the 54-cent ethanol import tariff. The amendment, offered by Sen. Dianne Feinstein (D-Calif.) and Sen. Tom Coburn (R-Okla.), was during the floor debate of a bill related to the Economic Development Administration.

Following the VEETC vote, the Senate rejected an amendment offered by Sen. John McCain (R-Ariz.) that would have prohibited funds from going to the construction of ethanol blender pumps. However, at nearly the same time, the House of Representatives passed a similar measure to Sen. McCain’s, which was introduced by Rep. Jeff Flake (R-Ariz.), by a vote of 283-128. That amendment was ultimately included in the final version of the House Agriculture Appropriations bill approved in June.

The future of these provisions is unclear. Without question, both of these bills, if they were to become law, will look significantly different than they do today. Meanwhile, several Senators are working to find a compromise on the immediate future of the ethanol industry. While still ultimately repealing VEETC and the tariff, a new agreement has reportedly been reached between Sen. Amy Klobuchar (D-Minn.), Sen. John Thune (R-S.D.) and Sen. Feinstein to allow for a transition period for the ethanol industry and continue to encourage the development of non-corn biofuels. The compromise would eliminate the tax credit by July 31, which would provide a savings of $2 billion for the remainder of the year. Of that, $1.3 billion would be directed to deficit reduction. The remaining money would be split between a number of lesser tax credits, including the production tax credit for cellulosic biofuel, an alternative fueling infrastructure tax credit and the small-producer tax credit. If enough support can be garnered in the coming weeks, there is a possibility this agreement could be tied to the debt limit deal currently being debated between Congress and the White House.