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Influence of Iowa, Ethanol Industry Appears to Wane

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Sen. Chuck Grassley conceded that opposing the ethanol tax credit might not be the death knell in the 2012 Republican presidential primary as it might have been in previous caucus contests.

The lopsided Senate vote on a bill by Sens. Tom Coburn (R-Okla.) and Dianne Feinstein (D-Calif.) would eliminate the 45-cents-a-gallon ethanol tax subsidy, and a 54-cent tariff on imported ethanol, worth $5 billion annually. But whether the underlying bill — a reauthorization of the Economic Development Administration — clears the Senate remains uncertain. And, even if it does, the ethanol provision would likely be rejected by the House because revenue bills must originate there.

There are some reasons for optimism about the clout of both the ethanol lobby and Iowa. President Barack Obama’s position on killing the ethanol tax credit could be an issue, given Iowa’s status as a swing state and what is shaping up to be a competitive White House race in 2012. The failure of an amendment offered by Sen. John McCain (R-Ariz.) to eliminate federal funding for gas pumps that can dispense ethanol-based fuels also showed that there’s still a modicum of support for the industry on Capitol Hill.

Sen. Tom Harkin also disputed that the vote on the Coburn-Feinstein amendment has anything to do with a diminishing of Iowa’s political influence, emphasizing that the defeat of the McCain amendment proves that Congress has not abandoned ethanol.

The five-term Iowa Democrat acknowledged the significance of the margin of the vote to repeal the subsidy, but he made clear he would prefer that the U.S. move away from subsidizing ethanol production and toward supporting increased consumer access to ethanol products.

Until Thursday, the Senate had not voted on the ethanol tax credit since 2007. Both Grassley and Harkin suggested the Senate voted to repeal it because Members from urban and oil-producing states found it a safe way to prove their commitment to fiscal austerity.

“In the past, we used to be able to get 70 votes for ethanol; now we get 70 votes against it,” Harkin said. “Because of the deficit, everybody’s looking for money wherever they can find it.”

Some in the pro-ethanol community contend that the successful repeal vote is a product of industry complacency and political and policy inflexibility that set in over many years under the belief that the tax credit would never lose a repeal vote.

Ethanol backers say the industry’s and the government’s participation in helping to create a market has suffered from several widely believed falsehoods, including that the creation of the ethanol fuel market has led to higher food prices while failing to have a positive effect on the environment. Supporters argue that their focus is now on maintaining government funding to build the infrastructure that can make ethanol more available to consumers nationwide — not on the production tax credit.

Tom Buis, CEO of Growth Energy, an organization that lobbies Congress on behalf of the ethanol industry, said supporters of the corn product have to adjust their tactics in light of the new political reality.

“I think the challenge is being able to make that transition,” Buis said. “In the old days, there was just blanket support for ethanol. ... Congress is now very focused on the budget deficit issue.”

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