WASHINGTON — Sen. Tom Coburn’s bid to eliminate a federal tax break for ethanol is pitting powerful Washington forces against each other on an issue that spans numerous special interests, including energy, the environment, agriculture and tax policy.

Coburn, who may push for a vote on his proposal this week, has focused primarily on the fiscal logic of paying ethanol blenders roughly $6 billion a year to do something that, he says, they’d be doing without the incentives.

But he also has criticized ethanol policy more broadly, saying the corn-based alcohol lowers fuel efficiency and doesn’t help the environment and that the increased use of corn for ethanol production has helped drive food and livestock feed prices higher.

Corn growers and the ethanol industry say the criticisms about ethanol are myths and have called Coburn’s amendment “job-killing.” They challenged him to hold a similar debate about tax breaks for the oil and gas industry.

Coburn, R-Muskogee, has some powerful allies, including big food companies, meat producers, environmental groups and some watchdog organizations such as Taxpayers for Common Sense.

But, he is fighting, in addition to the ethanol industry, Americans for Tax Reform, which sponsors the Taxpayer Protection Pledge to get lawmakers to commit to opposing tax increases.

Ryan Ellis, who directs tax policy for the organization, said the blender’s tax credit for ethanol is “very bad tax policy and very bad energy policy.”

Still, he said, eliminating the tax credit would result in a net increase in taxes and that the group is stressing that point to senators who signed the taxpayer pledge.

Ellis said the amount involved could easily be offset with tax cuts elsewhere.

Coburn offered his amendment to a small business bill pending before the Senate, but hasn’t been able to get a vote scheduled.
Sen. Charles Grassley, a Republican from the corn-growing state of Iowa, has been working to thwart Coburn’s efforts and told reporters last week, “I don’t want anybody on record on the ethanol issue, if we can avoid it, until we get down to the energy debate.”
Coburn spokesman John Hart said the Oklahoma senator “is going to use all procedural means available to him to force a vote on it at the earliest opportunity.”

Federal incentives
The blender’s tax credit, worth 45 cents per gallon to companies like Sunoco, ExxonMobil and others who blend ethanol with gasoline, was just renewed in December and is set to expire at the end of this year.

It is one of several federal incentives — including a tariff on imported ethanol — for domestic ethanol production.

Coburn said the incentive that makes the blender’s tax credit unnecessary is the Renewable Fuel Standard, which was increased by Congress in 2007 to require 36 billion gallons of renewable fuel be blended into transportation fuel by 2022.

The amount of corn ethanol is capped at 15 billion gallons.

Stephanie Dreyer, spokeswoman for Growth Energy, an advocacy group for ethanol, said the tax credit gives ethanol access to a market that is controlled by oil.

Dreyer said the Renewable Fuel Standard operates as a floor for ethanol production.
“If you take away the (blender’s tax credit), it becomes a ceiling,” she said.

The industry has offered a plan for phasing out the credit and replacing it with tax incentives for gasoline retailers to install blender pumps, allowing consumers to choose a blend of ethanol and gas.

The industry also wants a mandate for automakers to make flex vehicles that can run on much higher blends.

For most vehicles, the maximum blend allowable has been 10 percent ethanol. The Environmental Protection Agency recently approved an increase to 15 percent for newer vehicles, but that decision is being challenged in court.

The 10 percent cap has meant that the ethanol produced here can’t all be used here, Dreyer said. Coburn said nearly 400 million gallons of ethanol were exported last year.
“We’re now subsidizing the consumption of ethanol in Europe,” Coburn said.

Oklahoma’s representatives
Coburn isn’t the only Oklahoman who has taken on the ethanol industry.

Sen. Jim Inhofe, R-Tulsa, was the first, blaming ethanol production in 2008 for rapidly rising food prices; the U.S. Department of Agriculture and the World Bank have issued reports downplaying the impact of ethanol on food price spikes that year.

Inhofe also has called for hearings on the EPA’s decision to allow 15 percent ethanol in newer vehicles.

Rep. Dan Boren, D-Muskogee, is co-sponsoring legislation in the House that would have the same effect as Coburn’s amendment: an immediate end to the blender’s tax credit.

“The bottom line is that our constituents don’t want it in their gas, they don’t want it in their cars and I definitely don’t want it in my truck,” Boren said.

Rep. Frank Lucas, R-Cheyenne, the chairman of the House Agriculture Committee, said ethanol “is a very lively topic in agriculture and energy country in Oklahoma right now.”

Oklahoma is an oil and gas state, not a corn state, and ethanol could conceivably be seen as a competitor to both.

Boren, Inhofe and other Oklahoma lawmakers are pushing legislation that would give tax credits for expanding the use of natural gas vehicles.

Lucas, who will oversee the process of writing a new farm bill in the House, said his committee has little jurisdiction over ethanol policy, since much of it involves the tax code and falls to the Ways and Means Committee.

The farm bill may examine a land conservation program if there’s a need to increase acreage for corn, he said.

Lucas said he thinks “all sources (of energy) have a place in the mix,” but that, in tough budget times, it’s reasonable to expect the ethanol blender’s tax credit would be examined.
“It’s just too much money,” he said.

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