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Farm-State Senators Resign Themselves to Lower Ethanol Subsidies

The House has a vote today on HR 1230, a bill to expand offshore drilling and speed leases to completion. House Democrats are taking the opportunity to offer a motion to recommit that would repeal subsidies for Big Oil. This will put House Republicans on the record on the contentious issue.

On Thursday, when the House holds a vote on expanding domestic drilling, Democrats plan to force a vote on a measure that would repeal Section 199 of the domestic manufacturing tax credit for the five largest oil companies.

Rep. Tim Bishop (D-N.Y.) will offer the motion, which is based on a larger bill he sponsored to bring in revenue from major oil companies. That bill, called the Big Oil Welfare Repeal Act, would generate $12.8 billion in the next 10 years, according to Bishop.

Senate Democrats plan to push for a similar bill, with an announcement on timing expected to come out from Senate Majority Leader Harry Reid’s office shortly.

Although it is nearly certain to fail in the House, Democrats hope to use the vote to present some Republicans as hypocrites if they vote to continue the subsidies. A Democratic operative pointed to three freshman Republicans who have said they would support an end to the tax breaks: Reps. Joe Walsh (R-Ill.), Randy Hultgren (R-Ill.) and Reid Ribble (R-Wisc.).

This is fine, but it’s basically just an electoral gambit. It brings us no closer to actually removing the subsidies, unless Republicans are unusually sensitive to the issue.

UPDATE: The motion apparently failed, with unanimous opposition from Republicans… roll call. Walter Jones (R-NC) was the only GOP Yes vote. 234 No votes from Republicans.

But on another energy subsidies front, things are moving quickly. Farm-state Senators introduced a bill that would slash ethanol subsidies, clearly a move to head off a competing measure that would totally eliminate them. And both bills are bipartisan.

Senate Budget Committee Chairman Kent Conrad (D-N.D.) and Sen. Chuck Grassley (R-Iowa) — along with half-dozen other lawmakers — introduced a plan that would extend the ethanol blenders’ credit through 2016 but cut the level.

The 45-cent-per-gallon credit that refiners and fuel blenders receive for each gallon of ethanol purchased and mixed into gasoline is currently slated to expire at year’s end.

The new plan, according to Grassley’s office, would cut the credit to 20 cents in 2012 and 15 cents in 2013, and from there it would float or vanish — depending on crude oil prices.

“When crude oil is more than $90 a barrel, there will be no blenders’ credit. When crude oil is $50 and below, the blenders’ credit will be 30 cents. The rate will vary when the price of crude is between $50 and $90 a barrel,” according to Grassley’s office.

This is a white flag of surrender. I know the provisions are set to expire at the end of the year, but that happens pretty much every year, and eventually they get extended. Grassley and Conrad are basically saying that won’t work this year, and instead of having them go away completely they’ll try to keep a reduced version in place. Opponents don’t see the need for even these reduced rates, since a national renewable fuels mandate keeps the market in place.

Ethanol subsidies are expensive, and ethanol itself does not conserve energy as it raises food prices. There’s no good argument to keep subsidizing the industry. There’s not even much of an argument for the renewable fuels mandate, although if the market moves to cellulosic and other less energy-intensive fuels it could have a very positive impact.

These ethanol subsidies are a pittance of the subsidies we give to other polluting industries. But it’s a start. Whatever the outcome, it’s almost a lock that ethanol subsidies will be lower, perhaps substantially lower, next year.

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David Dayen

David Dayen