Thursday, July 7, 2011

Senate deal kills ethanol subsidy

So this is how the ethanol subsidy is going to end.

Or at least it looks that way after key senators reached a deal to end the 45-cent-per-gallon subsidy at the end of this month along with the 54-cent tariff on imported ethanol. The House and the White House have to go along, but this is clearly the best deal the industry is going to get. Ending the subsidy early under this agreement frees up $668 million to extend tax incentives intended to encourage sale of higher blends of ethanol at service stations, as the AP's Mary Claire Jalonick reports. But that $668 million is far from what the industry wanted just a few months ago when it was backing a multiyear phaseout of the subsidy proposed by Sen. Chuck Grassley, R-Ia.

Congress first created a tax incentive for fuel ethanol in 1978 and the subsidy has managed to survive ever since in no small part because of Iowa's pivotal role in the presidential nominating process.

What impact would ending the subsidy now have? University of Missouri economists recently estimated that extending the subsidy, which is curently set to expire Dec. 31, would increase ethanol production by a billion gallons in 2012 and increase the average price on next year's corn crop by 16 cents a bushel. Farmers would net an extra $25 an acre in 2012, according to the analysis.

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