This Week in the Congress

by William Yeatman on June 18, 2011

in Blog

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Senate Voted to End Ethanol Subsidy

By a 73-27 vote, the Senate on Thursday voted to end the Volumetric Ethanol Excise Tax Credit (VEETC), a 45 cents-per-gallon refundable tax credit given to fuel blenders for incorporating ethanol into the fuel supply. The VEETC is ethanol’s primary federal subsidy, although the industry also benefits from a Soviet-style production quota, enacted in the 2007 Energy Independence and Security Act, that forces Americans to use increasing amounts of ethanol. This year, the law requires the manufacture of almost 13 billion gallons of ethanol.

The anti-VEETC measure was an amendment to S. 782, the Economic Development and Revitalization Act of 2011, a pork-laden bill that has little chance of passage due to Republican opposition. Nonetheless, Thursday’s vote was historic, because it is the first time that the powerful special interests behind ethanol have suffered a major setback in the Congress. Moreover, it’s a strong signal that the VEETC’s days are numbered. The subsidy is set to expire in December, and it looks increasingly likely that the Congress will not renew it. Indeed, lawmakers might repeal it before then.

The amendment was proposed by Sen. Dianne Fienstein (D-CA). On Tuesday, an identical amendment failed to garner enough votes to end debate. Why did the same amendment fail on Tuesday and succeed on Thursday? The amendment offered on Tuesday was opposed by Senate Democratic leadership, who agreed with its substance, but objected to a procedural move used by its sponsor, Sen. Tom Coburn (R-OK), in order to force a vote.

Thursday’s vote broke down roughly along regional lines, with farm state Senators voting against the amendment, and non-farm state Senators voting for it. Proponents of ending the VEETC were of two types: Those who oppose ethanol in general, due to the fact that it makes food more expensive and harms the environment, and deficit hawks for whom it made no sense to subsidize the supply of ethanol in addition to mandating its demand.

EPA Administrator Lisa Jackson Testified before the Senate EPW Committee

On Wednesday, Environmental Protection Agency Administrator Lisa Jackson testified before the Senate Environment and Public Works Committee, on the public health effects of the Clean Air Act. Three things caught my ear:

  1. Senator Lamar Alexander (R-TN) aggressively questioned the inclusion of non-mercury pollutants in the pending Utility Maximum Achievable Control Technology (MACT) regulation pursuant to the Hazardous Air Pollutant section 112 of the Clean Air Act. I’ve addressed this issue in previous posts; suffice it to say, the EPA has at least a plausible case that it can regulate mercury emissions from power plants under section 112 of the Clean Air Act, but it has presented a very weak case that it isappropriate to regulate non-mercury hazardous air pollutant emissions under the same provision. The only reason that the EPA overreached was to ensure that the most expensive retrofits are required for coal power plants, regardless whether or not there are commensurate benefits. Senator Alexander indicated that the Congress would legislate a more appropriate regulation in order to avoid costs being sent into the “stratosphere.”
  2. Administrator Jackson reiterated the EPA’s claim that Clean Air Act regulations have benefits outweigh the costs by a 30:1 ratio. As is demonstrated by this recent Competitive Enterprise Institute study, the EPA’s cost-benefit analysis is grossly flawed and cannot be trusted.
  3. Finally, Administrator Jackson claimed that the pending regulations will result in the net creation of jobs. This is dubious. In claiming that regulations improve economic growth, Administrator Jackson is committing Frederic Bastiat’s “broken window fallacy.” [It would appear initially that a hoodlum launching a rock through a storefront window would “create” jobs in the window repair sector, and thereby grow the economy. However, the unnecessary cost to the store proprietor diminishes his or her ability to hire, such that there is no economic benefit resultant from the broken window. So, the Obama administration’s war on coal will indeed produce jobs in the pollution control sector, but it will destroy many more jobs due to higher electricity prices.] If the regulatory state could perpetuate job growth, the Soviet Union would still be around.

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