Budget-cutting fever puts ethanol subsidies at risk

As lawmakers look for places to cut spending, federal support for ethanol could become a tempting target. The U.S. Government Accountability Office says ethanol subsidies cost taxpayers billions of dollars and are not necessary.

Those subsidies are important to farmers in Minneesota, which is the nation's fourth largest ethanol producer.

The ethanol subsidy known as the "blenders credit" nearly died last year. But at the last moment, Congress renewed the 45-cent-a-gallon payout as part of the tax package it approved in December.

The subsidy is paid to gasoline companies that blend ethanol into their product, and will cost taxpayers nearly $6 billion this year. The environmental group Friends of the Earth is leading an effort to end the subsidy when it expires at the end of this year.

"This week we released a letter from 90 different organizations, all opposed to the extension of ethanol subsidies," said the organization's Kate McMahon.

"The current debate about the tax incentive for ethanol use is awfully shortsighted."

The letter to congressional leaders is signed by dozens of groups spanning the political spectrum. It includes conservative organizations, environmental groups and farm associations.

We've got Clean Water Action on the same letter as the National Chicken Council," said McMahon. "We have MoveOn.org with Freedom Works."

Livestock groups say ethanol production boosts demand for corn and pushes up their feed costs so high it threatens their economic well-being. Conservative groups say the subsidy is wasteful government spending. Environmental organizations believe ethanol can increase air pollution, and threatens water quality.

Efforts to convince the House and Senate to gut the subsidies got a boost this week when Congress' investigative arm renewed its recommendation to end taxpayer support for ethanol.

The Government Accountability Office said the 45-cent-a-gallon credit is not needed, because another federal program already is doing the same job as the credit.

The federal Renewable Fuels Standard mandates that petroleum companies blend nearly 14 billion gallons of ethanol into their gasoline this year. The GAO said that guarantees a robust ethanol industry, even if the blenders credit is ended.

But the ethanol industry says the GAO doesn't know what it's talking about.

"The current debate about the tax incentive for ethanol use is awfully shortsighted," says Matt Hartwig of the Renewable Fuels Association, a pro-ethanol group.

Hartwig says the anti-ethanol lobby is turning a blind eye to other energy subsidies.

"It focuses only on the ethanol component, and ignores the billions of dollars that are currently provided each year to very mature technologies like oil production," said Hartwig.

What Congress should do is include all energy subsidies in the discussion, Hartwig said, and then keep the ones which improve the nation's energy future. If that's done, Hartwig believes ethanol will prove its value because it's helping the U.S. reduce its dependence on foreign oil.

"We need a policy that focuses on the energy technologies of tomorrow, not the technologies of the past," said Hartwig.

The key players in the ethanol debate are the dozens of new lawmakers elected to Congress last November. Most are from the conservative side of the political spectrum.

Anti-ethanol groups hope they'll vote against the corn-based fuel as a way to reduce the budget deficit. Ethanol backers are betting that since many are from rural districts, they'll continue to support the fuel that has brought thousands of jobs to farming communities.

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