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U.S. Senate Votes to Kill Ethanol Subsidy

The U.S. Senate delivered a blow to the ethanol industry's hopes of preserving a $6 billion federal tax subsidy.

A bill introduced by Sen. Dianne Feinstein, D-Calif., calls for an immediate end to the 45-cent per gallon subsidy paid to oil refiners who blend ethanol. The credit was considered unnecessary by many critics who pointed out that the ethanol blend is already mandated by federal rules. The bill also ends the 54-cent tariff on imported ethanol, a vehicle that has boosted the purchase of domestic ethanol.

The bill received wide bi-partisan support and was approved 73-27. Fourteen Republicans and 13 Democrats -- mostly from corn-producing states -- voted against the measure. The amendment will be tacked on to an unrelated bill that may have trouble passing a Senate vote. However, the vote underscores the political momentum facing the ethanol industry as a showdown over the budget and the debt ceiling looms.

A separate bill that has yet to be voted on, and one that is getting support from the ethanol industry, would end the subsidy, but would implement a variable subsidy that would be tied to oil prices. A portion of the revenue from the new subsidy would then be used to pay down the national debt.

Corn-based ethanol is becoming an increasingly divisive issue, and the sides taking shape often run contrary to the usual red versus blue nature of American politics.

On one side are the ethanol supporters -- namely farmers, the ethanol industry and Corn Belt legislators. On the other side you’ll find conservatives eager to cut into the federal deficit and environmentalists who feel that the benefits of ethanol production are offset by its impacts of food prices.

Responding to the Senate vote, the Renewable Fuels Association issued the following statement:

"We are disappointed in the shortsightedness of this vote, particularly as this same body voted less than one month ago to preserve billions of dollars in taxpayer handouts to the oil industry.”

Because the bill has little chance of becoming law, the RFA saw it more as political maneuvering during a time of budget tightening than a serious attempt at crafting energy legislation.

“This vote was a freebie with no real consequences,” the statement went on to read. “With this theater now in the past, the ethanol industry stands ready to work with the Senate, House, and the Obama Administration to enact thoughtful policies that responsibly address fiscal concerns while moving American ethanol production forward.”

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