U.S. House said to consider reducing ethanol subsidy

(Bloomberg News Service) — The U.S. House Ways and Means Committee has proposed reducing the tax credit that helps support the ethanol industry by 20 percent to cut spending, according to two people familiar with the matter.

Refiners and blenders would receive 36 cents for every gallon of ethanol blended into gasoline, down from the 45 cents they currently pocket, said the people, who declined to be identified because the proposal hasn’t been made public. The tax credit expires this year and the committee is proposing to extend it a year.

Reducing the credit was a way to compromise with members of the committee who didn’t want to extend the incentives, the people said, and it could be attached to a legislative package for so-called green jobs within the next three weeks. The bill would also extend the 54-cent tariff slapped on Brazilian imports for one year.

“Clearly, the industry has to look at the likelihood that the tax credit isn’t going to be there forever,” said Mark McMinimy, an analyst at Concept Capital Washington Research Group. “That day may be sooner rather than later.”

The one-year extension and reduction would be short of the five years sought in a bill that Senators Charles Grassley, an Iowa Republican, and Kent Conrad, a North Dakota Democrat, introduced in April.

Our Take:
Petroleum has been a major energy source for a century and yet it is more incentivized than ever— $35 Billion in the U.S., $508 Billion worldwide in 2008. Why should ethanol have to settle for a reduction and then an abrupt end to incentives during its growth phase while the federal government gives Big Oil, an industry apparently in its sunset years, the keys to the U.S. Treasury?

It is the stated energy policy of America to grow the biofuels industry, in order to enhance national and economic security and to promote economic activity and jobs domestically, and to realize an environmental benefit. How does underwriting the oil industry do that?
All the ethanol industry is asking for is a level playing field. If you are going to reduce ethanol incentives, reduce oil incentives by the same amount.

Cutting off ethanol incentives? Then end oil incentives too.

Since our economy is so dependent on cheap energy, we think dropping any of these incentives may end up being penny wise and pound foolish, but if politicians want to show themselves as discerning managers of the funds that belong to all of us, perhaps they should follow the advice of Growth Energy and take any reductions of incentives and allow them to flow into the development of more blender pumps and more flexible fuel vehicles.


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