By Agri-Pulse staff

© Copyright Agri-Pulse Communications, Inc.

WASHINGTON, June 16 –In a crushing 73-27 vote Thursday, the Senate delivered a hard blow to the U.S. ethanol industry, adopting legislation from Sen. Diane Feinstein (D-CA) that would eliminate as of July 1 the 45-cent-per-gallon Volume Ethanol Excise Tax Credit (VEETC, or the blenders' tax credit). The measure would also kill the 54-cent-per-gallon tariff on ethanol imports.


However, ethanol supporters received some solace a short time later, when the Senate rejected a measure from Sen. John McCain, R-Ariz., that would have barred USDA from spending money to promote the installation of gas pumps capable of distributing blends higher than the 10%-ethanol content (E10) allowed through conventional pumps. Still, the House on Thursday adopted an amendment to the fiscal 2012 agriculture appropriations bill, 283-128, that would prevent the department from funding blender tanks and pumps.


Thursday's Senate action followed by two days a vote in the upper chamber on the same measure to kill the VEETC from Republican Sen. Tom Coburn, of Oklahoma. Coburn's bill failed (40-59) mostly due to Democrats' resentment to the way Coburn used Senate rules usually reserved for the majority party to get his proposal to the floor.


But Democrat Feinstein, an ally of Coburn in their opposition to the ethanol tax incentive, succeeded in getting Majority Leander Harry Reid's (D-NV) agreement to bring the same VEETC-killing measure to the floor under her sponsorship as an amendment to an economic develop reauthorization bill.


Still, questions remain as to whether the provision will ever become law. The White House has expressed strong opposition to ending the blenders' tax credit. And Coburn even acknowledged on Tuesday that the amendment to kill the VEETC faces a "blue slip," or rejection letter, from the House because by eliminating the tax credit, the measure raises revenue, a function reserved by the Constitution for the House.


In the face of political and procedural hurdles to the measure's enactment, senators on both sides of the issue have suggested a willingness to continue talking.


Nobody, including the biofuels sector, is expecting the VEETC to continue as is. The incentive was extended by the previous Congress last December, until the end of this year. But last year's extension came with an agreement that the biofuels industry would return with a unified biofuels development strategy.


Industry players, including ethanol, cellulosic and advanced biofuel interests, came up with an approach that would phase out the VEETC in exchange for federal support of expanding markets. The thrust of that industry proposal is evident in the latest alternative proposal for the VEETC, which was offered earlier this week by Sens. John Thune (R-SD) and Amy Klobuchar (D-MN). Their measure, which has the support of the biofuels industry, would also end the VEETC July 1 and use $1 billion of some $2.7 billion in savings to go to deficit reduction. But the Thune-Klobuchar bill would also extend tax credits for ethanol blender pumps, small ethanol producers and cellulosic biofuels.


The legislation would also create a new "safeguard" tax credit that would kick in only if the price of oil dropped below $90 per gallon. But that credit would be phased out in a few years.


Reaction to the Senate vote on the ethanol incentive was quick. The Advanced Ethanol Council dismissed the vote "as a distraction from a real energy discussion." AEC Executive Director Brooke Coleman said debate on the Feinstein-Coburn amendment was "another case of politics over substance." He said biofuel industry leaders will continue to work with lawmakers "to find common ground on a forward-looking and productive new way to promote a fuel that is already an important part of the U.S. energy portfolio." Cameron says his group wants to move "a proposal to the President’s desk that expands the market for ethanol and expedites the commercialization of promising new ethanol technologies and fuels."


In a statement headlined "Senate Votes to Keep OPEC in Charge of U.S. Economy," ethanol trade group Growth Energy CEO Tom Buis said the amendment "is unconstitutional and going nowhere,." He said the Senate "missed an enormous opportunity to take real action on deficit reduction and energy policy when it failed to put oil subsidies and giveaways to the same test as ethanol."


But National Cattlemen’s Beef Association (NCBA) President Bill Donald said the vote allows cattle producers to "compete head-to-head . . . on a level playing field." Cattle producers have long criticized the tax incentive as helping drive up the demand for ethanol and raising corn-based feed costs. The VEETC and the import tariff, Donald said, "have put cattlemen and other end-users of corn at a competitive disadvantage to the corn-based ethanol industry when it comes time to buy a bushel of corn."


The Brazilian Sugarcane Industry Association also lauded the Senate vote, noting that ending the import tariff would allow "other alternative fuels like sugarcane ethanol to compete fairly in the U.S." The Brazilians cite the same benefits for allowing their ethanol into the country duty-free as the U.S. ethanol claims for retaining the protections: save Americans money, cut dependence on Middle East oil and improve the environment.


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