The cost benefits of ethanol, and impact on jobs, are key issues for the continuation of subsidies

Two letters are being circulated around Capitol Hill this week, one from either side of the debate over continuing with the Volumetric Ethanol Excise Tax Credit and the tariff on imports of foreign ethanol, measures that are currently due to expire at the end of this month.

Both sides include bipartisan support, and both sides claim their position would be the best for reducing America’s budget deficit and its dependency on foreign oil.

Addressed to Senate Leaders Harry Reid and Mitch McConnell, the letters currently include 17 signatures favoring an end to the biofuel support measures and 15 signatures against.

Outside of Congress, the various lobby groups are lining up behind their favored side, but the Senators signing up to the debate are clearly divided between the Midwest and the rest.

Opposition

Senators Dianne Feinstein (D-Calif.) and Jon Kyl (R-Ariz.) are pushing for the end of federal support for ethanol, arguing that with fuel suppliers mandated to supply the biofuel by the Renewable Fuels Standard, subsidies and market protection are no longer needed.

They have Senators supporting their position including former Republican presidential candidate John McCain of Arizona, Barbara Boxer of California, Susan Collins of Maine along with senators from New England and the East Coast as well as the Mountain States and West Coast.

The group contends that extending the 54-cent-per-gallon tariff on ethanol imports and the 45-cent-per-gallon subsidy on blending for five more years would mean paying $31 billion to oil companies to use 69 billion gallons of corn ethanol “that the Federal Renewable Fuels Standard already requires them to use”. 

Their letter argues that the import tariff puts ethanol at a disadvantage compared to imported oil, and that the subsidy costs $1.78 for every gallon of gasoline consumption it reduces.

The Senators also cited research from Iowa State University suggesting that extending the biofuels measures for one year would only create 427 jobs, for a cost of about $14 million per job.

“Eliminating or reducing ethanol subsidies and trade barriers are important steps we can take to reduce the budget deficit, improve the environment, and lessen our reliance on imported oil,” the letter concluded.

Support

Meanwhile in the other camp, Iowa’s Republican Senator Chuck Grassley and North Dakota’s Democrat Senator Kent Conrad have been rallying the troops to push for the Senate leadership to extend the biofuels measures.

Their letter has been signed by Senators including Sam Brownback of Kansas,  Kit Bond of Missouri and Tom Harkin of Iowa, along with Senators from the Dakotas, Minnesota, Nebraska, Illinois and Michigan.

In a different take on the statistics, the Midwest group argues that ethanol support helps reduce the use of petroleum-based fuel and therefore reduces the $731 million spent each day importing oil.

The pro-ethanol letter claims “thousands” of jobs would be at risk from losing the subsidy and tariff in the ethanol industry, counter to the claims of ethanol opponents.

“Congress should demonstrate that it continues to recognize the need to develop domestic, renewable sources of fuel,” the Midwest Senators wrote.

The group suggested there would be time for a full debate on renewable fuels later in 2011, but that in the meantime an extension should be quickly adopted “for the longest term possible” to provide stability for producers and consumers of ethanol.

Jobs

Both sides of the US ethanol debate state they have the interests of the nation in mind, and that their line on the subsidies is the best option for jobs, the environment and fiscal responsibility.

Ethanol supporters will have to show that the subsidies are needed beyond the mandates of the Renewable Fuels Standard.

Opponents will have to demonstrate that ending the tax credit and tariff won’t have a similar impact as it did in the biodiesel sector, which is currently pushing to have its tax credits reinstated.

While the biodiesel sector also contributes to the mandates in the Renewable Fuels Standard – counting as the premium part of the targets, “advanced biofuels – that industry has seen a 35% cut in production with the loss of its tax credits at the end of 2009, with estimates of more than 20,000 job losses as a result.

And in this economy, the issue of jobs is likely to trounce any other.