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Senators Unveil Ethanol Compromise

posted on July 8, 2011

Hello, I'm Mark Pearson. Hiring slowed to a snail's pace last month, dampening prospects for an economic recovery in the second half of the year.

According to the Labor Department, U.S. employers added just 18,000 positions to their payrolls in June. That's the fewest new jobs in nine months and it pushed the national unemployment rate up to 9.2 percent -- its highest level this year.

Those who ARE employed are earning less. Average hourly wages declined last month, as did the average workweek. Typically, companies demand more hours from their existing staffs prior to hiring more workers.

On Wall Street, the Dow shed nearly 150 points in the wake of the labor report, but recovered about half of those losses before the closing bell Friday.

President Obama seized the unemployment figures to press Congress to raise the government's borrowing limit and keep America from defaulting on its debt for the first time in history. But Republicans say they won't support an increase in the $14.3 trillion debt ceiling without equal cuts in spending.

And in a move to stem the tide of red ink, a bipartisan group of lawmakers announced a compromise late this week cutting subsidies for ethanol.

Senators Unveil Ethanol Compromise

A small group of rural and urban lawmakers reached a bipartisan deal in the Senate this week regarding ethanol's future. South Dakota Republican John Thune and Minnesota Democrat Amy Klobuchar joined with Dianne Feinstein of California on a compromise to wean America's ethanol industry away from direct federal subsidies.

The plan would eliminate a 45-cent per gallon tax credit commonly known as the "blenders credit" and a 54-cent per gallon tariff on imports of foreign ethanol. Currently, $2 billion remains in federal coffers to fund the subsidies through their expiration on December 31. Under the compromise, however, those funds would be used for a combination of debt reduction and infrastructure facilitating higher blends of ethanol.

$1.3 billion, which represents two-thirds of the subsidies' 5-month price tag, will be contributed towards debt reduction negotiations on Capitol Hill. The remaining $668 million will be used for incentives in the biofuels industry.

Those incentives include tax credits for blender pump expansion through 2014. The move also would modify the tax credit allowing a broader range of blends between E15 and E85.

The compromise was met with largely positive reviews from biofuel advocacy groups in Washington that consider the deal a "best case scenario" in the current economic climate.

Just last month, the Senate voted in favor of an amendment from Oklahoma's Tom Coburn to immediately end $5 billion in ethanol subsidies. But the Coburn legislation is uncertain of final passage. The Thune-Klobuchar-Feinstein agreement also faces an arduous path due to congressional tax revenue rules mandating that all tax bills originate in the U.S. House.

But the White House signaled its approval for the ethanol compromise this week amidst high stakes budget negotiations between President Obama and congressional Republicans.

The Obama Administration also tipped its hat towards the next generation of alternative fuels this week. Energy Secretary Steven Chu and USDA Secretary Tom Vilsack announced $105 million in loan guarantees to "Project Liberty," a next-generation cellulosic ethanol plant in Emmetsburg, Iowa. The nation's first commercial-scale cellulosic ethanol plant has been on the drawing board for years as millions of dollars in financial backing was assembled. The plant, owned by Poet, is scheduled to begin construction in August and could go online in 2013.


Tags: biofuels Congress credit Energy/Environment ethanol farm subsidies news politics renewable fuels rural taxes urban