Ethanol subsidies should be phased out over a period of years rather than eliminated immediately, Secretary of Agriculture Tom Vilsack said last week, just before the Senate voted 73-27 to abolish the Volumetric Ethanol Excise Tax Credit (VEETC), the industry’s $6 billion subsidy.

“When we reduce or eliminate subsidies too quickly, we find out that there is an unintended consequence, which is that production is compromised and ultimately jobs are lost,” Vilsack said in a speech at the National Press Club in Washington.

Vilsack said ethanol made from corn has been a “scapegoat” for rising food prices worldwide. “We have to move beyond the all-too-common debate pitting food against fuel, and figure out how to meet both challenges–energy security and food security,” Vilsack said. “The truth of the matter is that corn-based ethanol does not deserve the scapegoat reputation that folks often attempt to assign it. During the great run-up in food and commodity prices in 2007 and 2008, American biofuel production played only a minor role–accounting for about 10 percent of the total increase in global prices.”

Ethanol consumes about 40 percent of the U.S. corn crop, which is the largest in the world, so about 15 percent of global corn production goes into the U.S. ethanol program.

The ethanol industry has been promoting the idea of a phase-out of the VEETC rather than an immediate end to it. The Senate voted to abolish the tax credit as of July 1, saving the $3 billion that the federal Treasury would otherwise lose in the second half of the year.

Todd Becker, chief executive of Green Plains Renewable Energy Inc., an ethanol producer based in Omaha, Nebraska, said he was disappointed by the Senate vote because an abrupt end to the tax credit would “send the wrong message” to investors.

The Senate vote did nothing, however, to address the Renewable Fuel Standard (RFS), a federal law that require the motor fuel industry to add 12.6 billion gallons of ethanol to gasoline this year.

Green Plains can do well without the tax credit, Becker said. “It’s the mandate that is crucial,” he said.

 

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