Ethanol credit may be target for Republican House

A Republican takeover of the House of Representatives and other election victories yesterday may spell trouble for U.S. subsidies that benefit ethanol producers including Archer Daniels Midland Co., after the party pledged to cut government spending.

Democrats lost at least 60 seats in the House and at least six in the Senate, short of the number needed for Republicans to take control of that chamber, after most votes were counted. That prompts leadership changes that may include Frank Lucas of Oklahoma taking over as chairman of the House Agriculture Committee from Collin Peterson of Minnesota. Senate farm-panel chairwoman Blanche Lincoln's defeat may put fellow Democrat Debbie Stabenow in that position.

New Tea Party and conservative lawmakers who made federal deficit reduction a campaign theme may make it more difficult to maintain money for farm programs, which have been criticized as wasteful, said Saxby Chambliss of Georgia, the top Republican on the Senate Agriculture Committee. An early cost-cutting test will be whether a lame-duck Congress extends a 45-cents-a-gallon tax credit for blenders of ethanol that added more than $4.7 billion to the deficit last year, he said.

"There are folks who ideologically don't want to see the tax credit," and those legislators will be emboldened by the public support at the polls, Chambliss said in a telephone interview last week.

Before the new lawmakers take office in January, Congress may seek a short-term extension of the tax credit at 36 cents a gallon, said Kevin Book, the managing director of Clearview Energy Partners LLC. That's less than extensions supported by the industry, including Poet LLC, the top biofuels maker; Decatur, Illinois-based Archer Daniels, the largest U.S. grain processor and the second-biggest producer of ethanol; and smaller companies including Green Plains Renewable Energy Corp.

Keeping the credit will be "an uphill battle," and doing so will be more important than its size, said Robert Dinneen, the president and chief executive officer of the Renewable Fuels Association, a trade group that includes ADM and Pacific Ethanol Inc. among its members. He said the key to maintaining support will be to tie ethanol production to jobs, a clear concern of voters, he said.

"I don't want to see plants shut down," and jobs lost should the credit expire, he said.

Biofuels will retain support in Congress because ethanol remains important to the economies of rural, farm-state Republicans, Book of Clearview Energy said. The U.S. is the world's largest producer and exporter of corn, the main crop used to make ethanol. Still, the long-term prognosis of federal support for the fuel is "grim," he said.

A more-conservative Congress will bring a new skepticism toward President Barack Obama's efforts on biofuels, environmental regulations and climate change, said Gary Blumenthal, the chief executive officer of World Perspectives Inc., a Washington agricultural consultant.

With more Republicans, Congress will be more critical of the Environmental Protection Agency, Chambliss said. Lucas has called for regular oversight hearings on the EPA, which farmer groups including the American Farm Bureau Federation, the nation's largest, say puts undue burdens on farms, as well as agribusinesses including DuPont Co., a maker of pesticides, and Tyson Foods Inc., a livestock and meat producer.

"We're going to see much more oversight of the EPA and USDA," Chambliss said. "Farmers are aggravated by the EPA, which stands above the rest in its overreach."

A divided Congress also may upend plans to pass a new farm bill in 2012, a goal pushed by Peterson, Chambliss said. The $300 billion, five-year bill, which is set to expire in 2013, authorizes all farm-program spending as well as food stamps and projects that support poor families and rural development. It benefits companies including Bunge Ltd. and Cargill Inc. by encouraging production, which lowers the cost of raw materials.