EINNEWS, November 24—-While most of the focus has been on expiration of the Bush administration’s tax cuts, there’s another unavoidable tax and budget issue waiting for Congress when it returns from its post-Thanksgiving break: what to do about the longstanding federal subsidy for ethanol.

Since 1978 the federal government has subsidized the production of ethanol from corn as a way to move toward a cleaner energy environment. That subsidy, a blenders’ tax credit currently priced at 45 cents per gallon, must be renewed periodically and under current law it is set to expire December 31.

But its future is not certain. Potent political forces from the political right, looking for ways to cut government spending, and from the left, in the form of environmental groups, are coalescing into a movement to block future ethanol funding. Other diverse groups, such as cattlemen and other meat product trade groups are concerned that ethanol demands are driving up the price of corn, also oppose ethanol subsidies.

The battle flared today in an exchange between ethanol opponents Sen. Jim DeMint of North Carolina and Sen. Tom Coburn of Oklahoma and fellow Republican Sen. Charles Grassley of Iowa, who supports the corn growers. Grassley suggested that if DeMint and Coburn are opposed to ethanol subsidies maybe they would also support expiration of tax subsidies for the oil and gas industry. Oklahoma is a major oil producing state.

Coburn’s response was that to cut the budget and federal debt everything should be on the table.

Many of the newly elected Republican House freshmen share that view and see budget cutting as one of their top priorities. While they won’t take office until next January, the members of the lame duck Congress have read the election tea leaves.

The money currently spent on corn ethanol accounts for about 75 percent of all federal money going toward renewable energy. This has triggered opposition from environmental and other clean energy interests that believe the funds could be better directed to energy alternatives.

Bruce Babcock, an economist with the Center for Agricultural Research and Development at Iowa State University helped inflame the contentious ethanol issue recently with a study that concluded that corn farmers would still turn a profit without the subsidy. This drew an immediate reaction from the Iowa Renewable Fuels Association and the Iowa Corn Growers Association who claim the study is shortsighted and based only on current market conditions.

Several meat and poultry industry interests have weighed in against extension of the ethanol subsidy, and also in opposition to an ethanol import tariff also set to expire December 31.

According to Feed&Grain.com, the meat groups argue that diverting corn to ethanol production raises the price of corn for feedstock and ultimately to the price consumers pay for meat. It’s estimated that ethanol will utilize 4.7 billion bushels of the 2009-2010 corn crop.

Also roiling the issue is a recent decision by the EPA to allow up to 15% ethanol in gasoline used in cares made since 2007. The current limit is 10%.

Groups ranging from the American Meat Institute, the National Turkey Federation and the National Pork Producers Council to the American Petroleum Institute have sued to overturn that decision.

In a letter to House Speaker Nancy Pelosi (D, CA), six meat/poultry groups said they are willing to talk about a smaller credit and shorter than five-year extension the ethanol industry supports.

For more agriculture news, visit Agriculture Industry Today (http://agriculture.einnews.com), a agriculture media monitoring service from EIN News.

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