Ethanol subsidies: A uniter among Midwest rivals?

Senate Democrats and Republicans agree on little these days, save for the fact that the sun rises and sets. (Although where it rises and sets still might be up for debate.) However, a group of Midwest senators agree on one thing: Subsidies for ethanol should be extended.

It’s no secret that the price of gas is skyrocketing. Today it hovers at $4 a gallon, and barrels are more than $100. Of course, all over the world people are paying more for gas than Americans. Europe, for example, pays twice as much. The problem is complex–environmentally, politically, and economically–and can’t be answered with a single resolution.

Still, biofuels, especially cellulosic ethanol, continue to be an emerging solution. E85, which is made from 85 percent ethanol, saw record sales in Minnesota in March of this year, just as gas prices began to rise. Yet as gas prices rise and ethanol use increases, Republicans in states other than the Midwest are calling for a moratorium on subsidies.

From HuffPo:

Sen. Tom Coburn, R-Okla., is forcing a vote on a measure Tuesday that would repeal the credits. Coburn says they are wasteful subsidies for an industry that no longer needs them.

“The days of placing spending programs in the tax code and giving them holy status are over,” Coburn said. “Ethanol is bad economic policy, bad energy policy and bad environmental policy.”

The Sierra Club supports the repeal, mostly due to the fact that the majority of ethanol is still currently produced from corn/ And monoculture farming–and the government subsidies for corn that fuel monoculture farming and an increase in herbicide and pesticide use–has had a particularly destructive impact on the environment over the last few decades.

So who supports ethanol subsidies? A bipartisan group of senators. Amy Klobuchar (D-Minn.) has co-sponsored a bill with John Thune (R-S.D.) that would extend certain ethanol subsidies. The bill, S.1185, would replace the current 45-cent a gallon tax credit with one that would fluctuate with the price of crude oil.

According to Sen. Richard Lugar (R-Ind.): “The proposal acts as a safety net to prevent OPEC from manipulating oil prices to kill-off their ethanol rival. When oil prices are high, as they are today, corn-based ethanol would not receive subsidy payments.”

Wait. What?

According to HuffPo, under the new proposal, ethanol blenders would receive a maximum of 30 cents per gallon if oil prices fall below $50 a barrel, and zero subsidy at all if crude prices are at $90 a barrel or more.

A cloture vote on Tuesday killed Sen. Tom Coburn’s (R-Okla.) amendment to end ethanol subsidies—so any new proposals such as Klobuchar’s might be DOA. It’s hard to understand a proposal that would end subsidies as the price of oil actually increased. Wouldn’t that be the goal of OPEC? To increase its prices to kill the ethanol industry? Is there something I am not getting?

One caveat: The controversy could produce more discussion around cellulosic ethanol. And who knows? Maybe with new discussions around renewable energy in the Senate, an American company will take a nod from Canada and start turning trash into energy.

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