Senate Votes to Cut $6 Billion in Ethanol Subsidies

The US Senate on Thursday voted overwhelming to cut roughly $6 billion a year in subsidies for the ethanol industry.

The 73-27 vote was largely symbolic, as several factors make it unlikely that subsidies will be cut completely, however it is indicative of the ill-favored status of the US ethanol industry.

The bipartisan amendment calls for eliminating the 45-cent-a-gallon subsidy for US ethanol production and the 54-cent-per-gallon tariff on imported ethanol. Both are due to expire at the end of the year anyway, but lawmakers have made the industry something of a punching bag in the ongoing budget debates.

The industry, which relies almost exclusively on corn as a feedstock, has been criticized for driving up food prices, while doing little to improve the environment.

Also, the industry is currently double-incentivized by the federal government. In addition to the subsidy and tariff, the federal Renewable Fuels Standard calls for increasing ethanol blending levels and establishes financial penalties for failure to reach mandated levels.

While Thursday’s amendment passed with strong support, it is being attached to a larger economic development bill that is not expected to pass the Senate.

Furthermore, the White House has threatened to use a veto, if necessary, to preserve some of the subsidies for the industry.

"We need reforms and a smarter biofuels program, but simply cutting off support for the industry isn’t the right approach," Agriculture Secretary Tom Vilsack says.

The ethanol industry wants subsidies to support the build-out of a distribution infrastructure rather than production. They want blender pumps to be installed at gas stations across the country.

USDA Secretary Vilsack supports the notion, which has also gained support in the Senate. But the Republican-controlled House passed a bill that would block USDA from funding installation of blender pumps at gas stations.

Ultimately, the subsidy and tariff are likely to be extended at lower levels beyond the end of this year. Ethanol state reps, Republican Senator Charles Grassley and fellow Democrat Kent Conrad introduced a bill that would extend subsidies for five years.

Senate Majority Leader Harry Reid asked Republicans who voted down ethanol subsidies to also end government financial breaks for Big Oil, but that vote remains unlikely.

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