Ethanol in crosshairs as deadline nears on tax credit

US lawmakers have until December 31 to prolong the subsidy, which costs the US government an estimated six billion dollars a year, but the earlier broad support for the fuel from farmers and environmentalists appears to be wavering.

Critics say ethanol, made mainly from corn in the United States, has diverted too much grain from food to fuel, and has done little to ease greenhouse gas emissions.

Now, a coalition Tea Party activists and a range of environmental and community groups is urging lawmakers to scrap the subsidy.

Letting the subsidies expire "will help control deficit spending without in any way hindering the development of advanced biofuels, which can help us meet our energy, environmental and food security needs in a fiscally responsible manner," said the coalition, which includes groups as diverse as the American Conservative Union, Center for Food Safety and Friends of the Earth.

A group of 17 senators meanwhile has gone a step further in a letter calling not only for the end of the 45-cent per gallon ethanol credit, but also the 54-cent tariff on ethanol imports -- a measure that has drawn the ire of Brazil, a major producer of sugar cane ethanol.

"These provisions are fiscally irresponsible and environmentally unwise, and their extension would make our country more dependent on foreign oil," said the senators led by Democrat Dianne Feinstein of California and Republican Jon Kyl of Arizona.

US Agriculture Secretary Tom Vilsack has urged Congress to extend the domestic subsidies and has said the tariffs should remain to give breathing room to a new industry.

"The bottom line is that this industry needs more time to mature and more investment to grow," he said.

"In order to meet the 36 billion gallon goal (for renewable fuels), we will need to work harder and faster. Now, incentives have helped build the biofuel industry and for the time being, incentives will need to continue," he added.

"At the same time, we need to begin to think about reforms to the ethanol credit program to make it more efficient and effective at addressing the full range of challenges we face in meeting our goals for traditional and next generation biofuels."

But ethanol has lost a key supporter in former vice president Al Gore, a Nobel Peace Prize laureate for his work on global warming. Gore told an energy conference in Greece recently that his earlier support for ethanol subsidies was a mistake, according to media reports.

"It is not a good policy to have these massive subsidies for first generation ethanol," Gore was quoted as saying.

"First generation ethanol I think was a mistake. The energy conversion ratios are at best very small," he said.

"One of the reasons I made that mistake is that I paid particular attention to the farmers in my home state of Tennessee, and I had a certain fondness for the farmers in the state of Iowa because I was about to run for president," Gore admitted.

Still, a large number of farm-belt lawmakers are working to extend the tax breaks for ethanol.

Senator Charles Grassley of Iowa led a petition by 15 lawmakers calling for the extension of the subsidies and tariffs, arguing that "ethanol offers the most effective alternative to foreign oil and supports hundreds of thousands of jobs in the United States."

"Domestically produced ethanol displaces millions of barrels of imported oil every year from Saudi Arabia, Venezuela and Nigeria and now accounts for almost 10 percent of the US fuel supply," said a statement from Grassley and colleagues.

Joel Velasco, representative in North America for the Brazilian sugarcane industry association, said ending the subsidy would likely reduce prices for American consumers.

"The bottom line is that competition works. The market for corn-based ethanol will still grow," Velasco said.

Brazil ended government subsidies for ethanol more than a decade ago and eliminated its ethanol tariff early this year. It is time for America to do the same. As the world's top producers of ethanol, the United States and Brazil should lead by example in creating a free market for clean, renewable energy."