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Losing ethanol subsidy could help industry, expert says

Photo by Mariordo Mario Roberto Duran Ortiz, Wikimedia Commons.
About the author
Senior Reporter

Frank Morris is the news director at KCUR in Kansas City and a senior contributor to Harvest Public Media.

The U.S. Senate in mid-June voted to end a $6 billion a year tax credit supporting the ethanol industry.  And at least one expert believes this may actually help the industry.

“The writing is on the wall that this ethanol tax credit is not long for this world,” said Bruce Babcock, professor of economics and the director of the Center for Agricultural and Rural Development at Iowa State University.

But this won’t harm the ethanol industry, he said, because federal mandates already require oil companies to blend ever more ethanol into gasoline.

“Looks like we’re going to be relying on the biofuels mandates to make sure blenders use biofuels, rather than bribing them to use it with $6 billion,” he said.

In fact, Babcock thinks killing the subsidy could help ethanol because it would come out from the stigma of being a subsidized industry. And removing the subsidy may strengthen support for the mandate, and the tariff on imports.

The American Coalition for Ethanol, however, criticized the Senate action in a press release.

“We are disappointed senators are willing to reward Big Oil for shamelessly hoarding subsidies, but are willing to penalize the biofuels industry, especially when we’ve voluntarily offered to sacrifice part of the existing tax credit for deficit reduction,” said Brian Jennings, the group's executive vice president.

The Associated Press reported that the Senate measure will be added to a bill renewing a federal economic development program -- and the prospects for the overall bill are uncertain. Still, the vote clearly endangers the ethanol tax credit, which would expire at the end of the year anyway, unless Congress renews it.