November 30, 2010 OPIS
Seventeen U.S. senators are urging fellow Senate leadership to let both the 45ct/gal ethanol tax credit and the 54ct/gal ethanol import tariff expire without extension at the end of this year, calling them “fiscally irresponsible and environmentally unwise.”
The letter comes as the Senate is in session this week for part of its lame duck and may consider extending a host of tax provisions.
“Subsidizing blending ethanol into gasoline is fiscally indefensible,” wrote the senators today to Senate Majority Leader Harry Reid (D-Nev.) and Senate Minority Leader Mitch McConnell (R-Ky.). “If the current subsidy is extended for five years, the Federal Treasury would pay oil companies at least $31 billion to use 69 billion gallons of corn ethanol that the Federal Renewable Fuels Standard already requires them to use. We cannot afford to pay industry for following the law,” the letter continued.
Additionally, the ethanol import tariff “makes our country more dependent on foreign oil,” the senators explained. “The tariff is nine cents higher per gallon than the ethanol subsidy it supposedly offsets, and this lack of parity puts imported ethanol at a competitive disadvantage against imported oil. This discourages transportation fuel imports from Brazil, India, Australia and other sugar producing countries, and leads to more oil and gasoline imports from OPEC countries that would enter the United States tariff free. Eliminating or reducing the ethanol tariff would diversify our fuel supply, replace oil imports from OPEC countries with ethanol from our allies and expand our trade relationships with democratic states,” the letter noted.
The letter also explained how “[t]he data overwhelmingly demonstrates that the costs of the current ethanol subsidy and tariff far outweigh the benefits.”
“Eliminating or reducing ethanol subsidies and trade barriers are important steps we can take to reduce the budget deficit, improve the environment and lessen our reliance on imported oil,” the letter concluded.
The letter, by senators representing mostly coastal states, was sent by Dianne Feinstein (D-Calif.), Jon Kyl (R-Ariz.), Jack Reed (R-R.I.), Richard Burr (R-N.C.), Ben Cardin (D-Md.), Mike Enzi (R-Wyo.), Jim Webb (D-Va.), Bob Bennett (R-Utah), Barbara Boxer (D-Calif.), John McCain (R-Ariz.), Sheldon Whitehouse (R-R.I.), Tom Coburn (R-Okla.), Susan Collins (R-Maine), Bob Corker (R-Tenn.), Jeanne Shaheen (R-N.H.), Mark Warner (D-Va.) and Chris Coons (D- Del.).
The reaction in the ethanol community was both swift and critical. “Calling for the elimination of investment in domestic ethanol production may seem pennywise, but is extraordinarily pound foolish,” said the Renewable Fuels Association (RFA). “Eliminating the tax incentive could erase the $3 billion of net revenue for federal tax coffers generated by the domestic ethanol industry in 2009 and put tens of thousands of Americans out of work. As nearly 10% of Americans are still without work and some 800,000 facing the expiration of unemployment benefits, it is counterproductive to relegate thousands of additional Americans to the same fate,” the group continued.
Meanwhile, “[t]he tariff on imported ethanol is neither a burden on imports nor a factor driving America’s dependence on imported oil,” RFA explained. “The tariff simply exists to offset the value of the tax credit, preventing American taxpayers from subsidizing foreign ethanol producers. In a time of budget concerns and tax debates, propping up industries in other nations that already enjoy the largesse of their native governments seems counterintuitive,” RFA added.
Several proposals have been floated on extending the ethanol tax incentive, although at a lower amount, with specific figures of 36cts/gal and 30cts/gal discussed. However, it’s unclear whether Congress will have the time to address extending the provision.