Senate Votes to End Ethanol Credit
America has an energy problem. It also has a fiscal deficit problem. Some would say, it has a corporate welfare problem. Recently, it has had a commodity price problem, as well. Yesterday’s vote in the Senate to end a tax credit for companies that blend ethanol with gasoline appears as though it may, in a small way, indicate a willingness in Washington to address at least some of those problems.
The measure had wide support (73-27) with even some farm state Senators voting to end a tax credit of 45 cents per gallon. The Government Accountability Office, according to a Los Angeles Times report, concluded the tax credit was no longer needed because legislation passed in 2005 required ethanol to be blended with gasoline.
“I think we’re looking at everything now,” Sen. Mike Johanns (R-NE), told Politico. “Trying to figure out what to do with the budget has caused us all to come to grips with some things we’ve supported in the past.”
Sen. Dianne Feinstein (D-CA) who co-sponsored the measure with Tom Coburn (R-OK), told Politico, “I think the days of large subsidies like this are really over, and this is kind of the first vote on it.”
The action in the Senate does not mean passage of the bill is a sure thing. The measure would still need to be debated and passed in the House and Senators from farm states have already introduced compromise legislation in the body that could alter its final form.
Regardless of what happens in the end, yesterday’s action had an immediate effect on commodities where the price of corn and wheat fell to their lowest levels in three months. An end to the ethanol subsidy would likely decrease the need for corn for fuel purposes leaving more on the market for other, lower paying uses such as feed for livestock.
“It’s getting a lot of pressure,” Jonathan Barratt, managing director at Commodity Broking Services Pty., told Bloomberg News. “We’re expecting further losses for the grain sector.”
According to Bloomberg, global demand for corn has increased 20 percent over the last five year as subsidies and tax incentives have boosted ethanol production. Thirty-eight percent of domestic corn production was designated for use in ethanol, according to the U.S. Department of Agriculture.
The Grocery Manufacturers Association (GMA) applauded the action by the Senate and an amendment in the House of Representatives that would end federal subsidies of corn ethanol.
“With corn prices at record levels, these votes convincingly show that the tide has turned against using food for fuel and that Americans want responsible energy policy solutions that do not pit our nation’s energy needs against food security for millions of families,” said Pamela Bailey, president and CEO of GMA.
- Ethanol vote fuels subsidy doubts – Politico
- Corn Slumps to Three-Month Low on Concern Ethanol Use May Slow – Bloomberg News/Bloomberg Businessweek
- Senate votes to eliminate ethanol tax credit – Los Angeles Times
- GMA Applauds Senate, House Votes to Cut Federal Support for Misguided Food to Fuel Policies – Grocery Manufacturers Association
Discussion Questions: How will the end of ethanol subsidies, if that happens, affect the retail industry in the short and longer terms?