Ethanol industry scrambles to keep incentives

The once-popular ethanol industry is scrambling to hold onto billions of dollars in government subsidies, fighting an increasing public skepticism of the corn-based fuel and wariness from lawmakers who may divert the money to other priorities.

The industry itself can't agree on how to persuade Congress to keep the subsidies, which now come in the form of tax credits worth about $6 billion annually.

One industry group, Growth Energy, made the bold move Thursday of calling for the tax credits to be phased out completely in favor of spending the money on more flex-fuel cars and gasoline pumps that support ethanol. A rival group, the Renewable Fuels Association, said it's too late in the year to make such proposals - the tax credits expire at the end of the year, and legislative days are numbered.

As the industry bickers over what to do, Congress is signaling it's growing tired of paying for ethanol. The House Ways and Means Committee is considering slashing the tax credit by 9 cents a gallon, from 45 cents to 36 cents, when it looks at a wide range of energy tax credits as early as next week. That would be the second cut in the credit in as many years.

A key senator also expressed skepticism this week. Democratic Sen. Jeff Bingaman of New Mexico, chairman of the Energy and Natural Resources Committee and a longtime supporter of renewable fuels, said Congress should "weigh all factors, including the credit's very high cost to taxpayers," when looking to extend the credit. Bingaman noted that the ethanol industry is protected by congressional mandates for its use.

Some supporters say they see the writing on the wall.

"The longer we have this support structure in place for ethanol, the more people begin to question it," said Roger Johnson, president of the National Farmers Union, which supports Growth Energy's plan. He says a new approach is needed as the public becomes more skeptical.

The tax credits still have strong supporters on Capitol Hill and in the Obama administration. Agriculture Secretary Tom Vilsack said Thursday that the administration remains committed to tax incentives supporting biofuels like ethanol. Rep. Earl Pomeroy, D-N.D., a member of the Ways and Means Committee, is leading the fight in the House to keep the tax credits.

Pomeroy says that the 9-cent cut is a good starting point and that he feels optimistic after discussing the issue with fellow committee members and members of the ethanol industry this week.

He acknowledges that the legislative environment is challenging and says that a simple extension of the credit makes the most sense in the House. "Late in the legislative session, simpler is easier," he said.

Iowa Sen. Charles Grassley, the top Republican on the Finance Committee that will consider the tax, said he is also working to get it extended. He noted that the lapse of a tax credit for makers of biodiesel has already hurt that industry.

Ethanol producers say expiration of the tax credits, which are paid to oil companies as an incentive to blend gasoline with ethanol, could mean the loss of almost 40 percent of its plants and tougher times for a domestic fuel that is good for national security.

Critics say the industry should stand on its own after receiving subsidies for 30 years and argue the tax credits are a waste of taxpayer dollars. A diverse coalition of groups has argued over the past few years that the increase in production of corn and its diversion for ethanol is making animal feed more expensive, raising prices at the grocery store and tearing up the land.

Craig Cox of the Environmental Working Group, one of the organizations opposing the fuel, says he thinks the industry "hit a wall" in Congress as concern over budget deficits have increased.

Growth Energy, a group formed in 2008 as some ethanol companies grew worried that their political clout was waning, said it is proposing the phase-out as a way to think more creatively about boosting the industry and the fuel. The group says ethanol helps reduce the nation's dependence on foreign oil, pointing to the Gulf oil spill as a reason to turn to the corn-based alternative.

The industry was also frustrated last month by a delay by the Environmental Protection Agency in deciding whether U.S. car engines can handle higher concentrations of ethanol in gasoline. But the increase in the maximum blend is expected to be approved later this year.

(Copyright 2010 by The Associated Press. All Rights Reserved.)