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Ethanol Industry Torn Over Losing Subsidy Billions

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Ethanol Industry Torn Over Losing Subsidy Billions

Energy

Ethanol Industry Torn Over Losing Subsidy Billions

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STEVE INSKEEP, host:

Let's stay in the Midwest for a story on ethanol subsidies. The federal government pays oil companies about $6 billion per year to blend ethanol into your gasoline. But an agreement to raise the debt ceiling may include a plan to end that subsidy. And after all these years, many in the ethanol industry say they don't really care.

Harvest Public Media's Frank Morris reports on how the corn ethanol business changed.

FRANK MORRIS: The fuel in your car or truck right now didn't get to the gas station straight from the refinery. It very likely stopped at a place like this, the Magellan terminal in Kansas City, Kansas, where gasoline from a pipeline was blended with ethanol.

Mr. JEFF MYERS: Well, the ethanol all comes in here by truck. You see that truck there with the white cab and the truck behind it with the black cab; those trucks are full of ethanol. So they're waiting to pull in underneath this bay where they will unload the ethanol. The other trucks in line over here, they're waiting to load fuel.

MORRIS: That's Jeff Myers, who runs this sprawling complex of enormous white fuel tanks. Ethanol and gas mix in the trucks' cargo tanks, earning whoever owns the fuel a blending credit worth 45 cents for every gallon of ethanol. Until recently, the ethanol industry said it would wither without this subsidy. Here's Bob Dinneen, president of the Renewable Fuels Association, in an interview with the Domestic Fuel less than a year and a half ago.

Mr. BOB DINNEEN (Renewable Fuels Association): If you do not extend the tax incentive, we're going to lose 112,000 jobs across all sectors of the economy.

MORRIS: Here he is talking about the same tax credit now.

Mr. DINNEEN: In today's environment, no, you don't need it.

MORRIS: Huh? People like Tom Burris, with Growth Energy, the other main ethanol group, say the tax credit has been vital to getting ethanol industry off the ground.

Mr. TOM BURRIS (Growth Energy): The industry wouldn't have happened without it, but we're in a different position today.

MORRIS: There are at least three reasons for this. The first is regulatory -the government forces oil companies to use ethanol, and that mandate is growing. Next year, it will call for more ethanol than the industry produced this year.

Bruce Babcock at Iowa State University says that mandate renders the tax credit irrelevant.

Mr. BRUCE BABCOCK (Iowa State University): You can see that that growing mandate really is the thing that's going to drive ethanol demand, and the $6 billion that we're spending really isn't going to accomplish anything.

MORRIS: High oil prices are another reason ethanol producers are sanguine about the tax credit ending. Corn ethanol is currently cheaper to produce than gasoline. It's also quite a bit cheaper than imported ethanol made from sugar cane.

The third reason Babcock cites - well, that you could call sour grapes.

Mr. BABCOCK: They've never been so politically vulnerable as they are right now. They're used to winning these battles for subsidy. And they put a great deal of political weight and effort into maintaining this tax credit, and they lost.

MORRIS: Last month, the Senate voted overwhelmingly to end the subsidy.

Ms. SHELIA KARPF (Environmental Working Group): It's definitely long overdue.

MORRIS: Shelia Karpf is with the Environmental Working Group.

Ms. KARPF: We think of it as a college kid that needs to move out of their parents' basement, or even, you know, a 50-year-old that needs to move out of their parents' basement.

MORRIS: A tariff against imported ethanol will die with the subsidy. But that won't stop ethanol producers from using about 40 percent of all the corn grown in the U.S. And Karpf says the next battleground will be over cutting the mandate to use ethanol.

Ms. KARPF: There are talks right now about trying to reduce the corn ethanol mandate since it is pushing up the price of feed and food.

MORRIS: The ethanol mandate has a lot more friends than the subsidy though, and it's not likely to change anytime soon. Meanwhile, the ethanol industry's more immediate problem is finding some way to sell all the fuel it can produce. That would mean going beyond the 10 percent now blended into most gasoline as a safe low-cost octane booster.

Gas stations, like this one in Lee's Summit, Missouri, could be part of the solution.

(Soundbite of gas pump)

MORRIS: Here customers can buy a range of fuel blends. Eighty-five percent ethanol is a popular one. Thanks largely to the tax credit, it's much cheaper than normal gas.

Michael Riely pulls up in a Japanese sports car with a big hood scoop.

Mr. MICHAEL RIELY: For me, it's either this gas or I have to run race fuel. And race fuel runs at least eight bucks a gallon. So I'm paying 2.99 for this, versus the same quality fuel as I have to pay $8 if I want regular gasoline for this car.

(Soundbite of car engine)

MORRIS: So 33 years of federal subsidies have helped to build a big corn ethanol industry. And mandates aside, most people who run it say it's ready to stand on its own.

For NPR News, I'm Frank Morris in Kansas City.

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