Good Ethanol News

by Brian McGraw on July 28, 2011

in Blog

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Senator John Thune (R-SD) concedes that there is little hope for sticking the ethanol ‘compromise’ into the ongoing debt ceiling negotiations:

“We had hoped to be able to hitch a ride on whatever the big debt package was going to be. We assumed there would be a tax title in that,” Thune said. “That unraveled.”

The plan would end the blenders tax credit early, months before the schedule expiration date of Dec. 31. Under congressional rules, Thune and Klobuchar would need to attach their plan to legislation that already deals with taxes.

Thune said members of Congress are generally hostile towards ethanol, making it difficult for the plan to pass as a standalone bill.

This is very good news. As I wrote previously (while incorrectly assuming it would pass) here, the ethanol compromise would have funneled millions of dollars into encouraging the adoption of higher blends of ethanol throughout the country, despite its questionable environmental benefits and its higher cost after adjusting for its lower fuel economy.

Thune isn’t confident that there will be any other legislation that the tax ‘compromise’ can be inserted into. It’s tough to judge this as biofuels still have strong support from the Obama administration. More importantly though, the bill was initially scored as deficit reducing, as the tax credit would have ended July 21, 2011 adding roughly ~$2 billion in tax revenues while doling out half of that. The bill will no longer be able to be scored as deficit reducing, as the tax credit expires at the end of the year.

The fact that the original compromise was advertised as deficit reducing may have attracted a number of politicians to support it, as deficit reduction is popular in Washington, and pissing off powerful interest groups is not popular. The closer to the end of the year, the less likely it becomes for the bill to actually reduce the deficit. Once it has expired at the end of the year, any move to support the ethanol industry will cost money, scaring politicians away from earmarking funds for an industry that has come under attack.

Finally, the case against biofuels is widespread, with many groups wanting to end the Renewable Fuel Standard (the mandate) rather than just the tax credits. Senator Thune, unsurprisingly, follows the theme that its best to just blame everything on the oil industry:

“There was a time when ethanol was very much viewed favorably by people who didn’t represent ethanol-producing states,” Thune said. “It was viewed as the fuel of the future.”

Thune blamed oil companies for working to build up opposition to ethanol, which now spans from environmentalists to food companies to cattle ranchers to, well, oil companies.

The arguments against ethanol are largely unsupported by facts, Thune said, but people have made up their minds. “People have formed their opinions, and it’s really hard to reverse them,” he said.

“A lot of people out there have been spreading misinformation on this for a long time.”

So the oil industry convinced environmental groups to oppose ethanol. What’s more likely is that as time passed and the evidence came in it became clear that the few minor upsides to ethanol are widely outweighed by the negatives of government support for the industry.


Smara Voglesong July 28, 2011 at 11:07 am

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