Ethanol subsidies in doubt as politicians quiet on renewal

Ethanol pumps
This July 9, 2009 photo shows Ethanol E-85 enthusiast Donald O. Brown talking to a motorist in Minneapolis where he tried to convince her to try the high-ethanol blend of E85.
AP Photo/Jim Mone

The next few months are likely to be critical for the ethanol industry as two key subsidies for the alternative fuel expire in December -- and it's unclear if Congress will renew them.

One subsidy, called the blenders credit, pays refiners to mix ethanol into their gasoline. The other limits competition from ethanol imports. Together the two cost taxpayers about $6 billion a year.

So far Congress hasn't shown much interest in renewing the subsidies, which date back decades. That's a big change from just a few years ago, when ethanol was Washington's alternative fuel of choice. In 2006, the fuel rated a mention in President George W. Bush's State of the Union speech.

"We'll also fund additional research in cutting edge methods of producing ethanol -- not just from corn, but from wood chips and stalks or switchgrass," Bush said then.

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Four years later, President Obama has been publicly silent about renewing the subsidies. That has executives in Minnesota's $3 billion ethanol industry concerned.

"The political reality is that time is running short," said Mike Jerke, general manager of Chippewa Valley Ethanol in Benson.

The subsidies boost demand for ethanol and sales from the west central Minnesota plant could suffer if they're not renewed. Jerke is hoping for quick congressional action.

"It can still happen, but there are a lot of hurdles to cross even at this point," he said.

One of the biggest hurdles is whether Congress will have time for ethanol before the end of the year, given lawmakers' focus on the November elections, tax and economic issues. Plus, some lawmakers have already signaled that alternative energy subsidies may not be a major concern.

A key credit for the soybean based biodiesel industry expired at the end of last year, and has not been renewed.

Dan Basse is President of AgResource, a Chicago based company that tracks agricultural trends, said support for ethanol in Congress seems to be slipping.

"A lot of politicians would take the view that 'we initially subsidized ethanol to build out an industry,'" he said. "How long does the U.S. taxpayer have to continue to support this industry before it can stand on its own?'"

Fueling negative views of the subsidy is a powerful anti-ethanol coalition. Right now the ethanol industry uses a third of the U.S. corn crop. Environmental groups argue the fuel has taken so much corn out of the food supply that's its forced farmers in the United States and around the world to plow up marginal land to make up the deficit. That releases more greenhouse gases, increasing global warming problems.

Livestock interests also complain about ethanol. They say ethanol's corn demand has driven up prices for the grain. Richard Lobb, communications director for the National Chicken Council, said high corn prices are the main reason feed costs for livestock and poultry have risen 50 percent.

"We're never going to get any relief from the high cost of feed until there is some change made in the ethanol set-up," he said.

The high corn prices have had serious consequences, Lobb said.

In a letter to the Senate, leaders of the anti-ethanol lobby said the high feed prices have caused almost $30 billion in losses for the hog, beef and chicken sectors, and that eliminated 3,000 jobs in turkey production.

There are signs the ethanol industry is hearing its critics.

A major ethanol lobbying group, Growth Energy, has proposed eliminating the most expensive of the ethanol subsidies, the blenders credit. But there's a catch. The group wants to redirect the subsidy funding to other ethanol projects.

Rob Skjonsberg, vice president of government affairs for POET, one of the nation's largest ethanol producers, said the idea is to spend the money instead on infrastructure -- projects such as ethanol pipelines to the east and west coasts and more ethanol pumps at gas stations.

Those steps and others would boost ethanol sales, ending the need for federal subsidies, said Skjonsberg, a member of Growth Energy's board of directors.

"We can stand alone and we can be a consumer driven industry but you've got to have the infrastructure in place in order to do that," he said.

For that to happen, Congress would have to agree to extend the subsidies and change how the money is used. Given the changing politics of ethanol there's no guarantee lawmakers would do either.