Springfield State Journal Register

November 3, 2003

Ethanol provisions bog down energy bill

By DORI MEINERT
COPLEY NEWS SERVICE

WASHINGTON - A plan to reshape ethanol tax incentives was eagerly embraced by ethanol supporters last spring as a way to appease highway advocates who want more money for road projects.

But the ethanol tax changes have become a major stumbling block for House and Senate negotiators trying to complete a massive energy bill.

The bill's fate is being closely watched by Midwest farmers because it also contains a mandate for more ethanol usage, which they say would expand the market for their corn.

"I'm very concerned because this is very important to this country. I don't understand why politicians can't get together and do what's best for America," said Theresa Schmalshof, a farmer from Adair, Ill., who is vice chair of the National Corn Growers Association's ethanol subcommittee.

Illinois is the nation's biggest ethanol producer with five plants, including plants in Peoria and Pekin, and two more under construction. The bill would require gasoline refiners to increase their use of corn-based ethanol to 5 billion gallons a year by 2012. This year, the ethanol industry is expected to produce 2.7 billion gallons.

Without an agreement on the energy bill, potential new plants may not be built, said Schmalshof, who chairs a farmer's co-op that hopes to break ground on a new plant in Canton later this year.

Senate Finance Committee Chairman Charles Grassley, R-Iowa, one of the chief negotiators, this week described energy bill negotiations as "not dead, but gasping."

President Bush on Thursday pressed negotiators to resolve the conflict during a trip to Ohio, the nation's largest ethanol consumer and a state that was hit hard by the power blackout in August.

"That's my message to Congress - resolve your differences. Understand that if you're interested in people finding a job, we need an energy policy," Bush said at a stop in Columbus. "That's why I'm here. I want these people working. I want their friends to be able to find jobs. Get the bill done."

Vice President Dick Cheney and Energy Secretary Spencer Abraham met with congressional leaders on Capitol Hill this week. But so far, there's been no movement.

Complicating the negotiations is the tension between the two top tax-writers in Congress - the folksy Grassley, a strong ethanol supporter, and the more abrasive Rep. Bill Thomas, R-Calif., a longtime ethanol opponent.

Thomas, the powerful chairman of the House Ways and Means Committee, is demanding that the ethanol tax changes be removed from the energy bill and brought up during next year's debate over the highway bill. California lawmakers fear ethanol will increase gas prices in their state. Thomas' district is home to numerous oil facilities.

"Chairman Thomas' goal is to deliver an energy bill - and the House negotiators are working to make that happen," said Thomas spokeswoman Christin Tinsworth. "Yes, there are policy differences between the House and the Senate, but those issues will be resolved. And they are just that, policy differences."

Grassley has said the bill may not pass the Senate without the tax provisions.

In addition to the support of farmers, the ethanol tax changes have broad support from states such as Illinois and Ohio that use a lot of ethanol. Such states receive less in highway funding because ethanol is taxed at a lower rate than gasoline. They pay less in gas taxes into the federal highway trust fund and receive less back for road construction. The changes that Grassley supports are expected to add $2 billion a year to the highway trust fund, by replacing the current ethanol tax breaks with an ethanol tax credit for refiners that would be deducted from the U.S. Treasury.

"We want a bill that focuses equally on renewable energy, conservation and traditional energy sources. The House approach so far hasn't been balanced," Grassley said in a statement issued by his office Thursday.

In the fight, Thomas has an unlikely supporter in House Speaker Dennis Hastert, R-Ill., who in past years has acted to save ethanol provisions in legislation that are important to his state. "He's still a big supporter of ethanol," Hastert spokesman John Feehery said.

Hastert had reached an agreement with Senate Majority Leader Bill Frist, R-Tenn., in which he and Thomas promised to support the ethanol tax provisions in next year's highway bill, Feehery said. But Grassley objected.

Hastert supports Thomas, one of his committee chairmen, Feehery said. "He wants to get this stuff done. He thinks it was a fair deal," Feehery said.

The energy bill has been three years in the making. But it gained impetus this year with the widespread blackouts in the Midwest and Northeast. Last year, the energy bill containing the ethanol mandate died when negotiators couldn't come to an agreement before Congress adjourned.

While negotiations could continue after the holiday break, there is pressure on Republicans to act on a politically popular issue such as ethanol before they return to their districts. Democrats have been left out of the high-level negotiations.

"Do I expect it to be resolved? Absolutely," said Frank Maisano, spokesman for the Oxygenated Fuels Association. "Because this is a major piece of the Republicans' domestic agenda."