WASHINGTON — Agriculture Secretary Tom Vilsack on Monday launched a vigorous defense of federal ethanol subsidies, warning that cutting them off entirely would deal an economic blow to rural areas.
In remarks at a National Press Club luncheon, Mr. Vilsack urged a gradual reduction of government support for ethanol — particularly corn-based ethanol — but criticized a Republican senator's proposal this week to eliminate a federal tax credit for ethanol producers.
The Senate will vote today on a proposal by Sen. Tom Coburn, R-Okla., to eliminate the 45 cents-per-gallon tax credit that goes to ethanol producers. The tax credit adds up to about $6 billion a year in lost government revenue.
Mr. Coburn's idea has some support on both sides of the aisle as lawmakers look for ways to trim federal spending or, in this case, boost tax revenue to help reduce the budget deficit.
The tax credit is just one of the federal policies that support the biofuels industry and, critics say, isn't necessary to assure ethanol makers a market. Another key program is a federal mandate that requires ethanol to be blended into gasoline, for instance.
In upstate New York, federal ethanol programs have helped support the conversion of the former Miller Brewing Co. plant in Oswego County into an ethanol plant that relies in part on corn grown by New York farmers. That plant was founded by Northeast Biofuels, which declared bankruptcy shortly after beginning production. Sunoco subsequently bought the operation.
"When we reduce or eliminate subsidies too quickly, we find out that there is an unintended consequence, which is that production is compromised and ultimately jobs are lost," Mr. Vilsack said.
When a biodiesel tax credit was eliminated last year, he said, production fell by half and about 12,000 jobs disappeared. "I think we have to be careful what we do relative to support for the biofuel industry."
Mr. Vilsack said he agrees that the government needs to move away from corn-based ethanol — which has been criticized for taking away corn that could be used for food — but the government has a responsibility, too, to find alternatives for job growth in rural areas.
An ethanol industry group, Growth Energy, called Mr. Coburn's measure a "job-killing amendment" and said it would allow foreign oil to retain control over the U.S. economy.
"We can grow our way out of $4 a gallon gasoline, but we need Congress to open the market and allow competition to foreign oil," Growth Energy's chief executive officer, Tom Buis, said in a statement.