U.S. Ethanol Credit May Be Cut by House Republicans

A Republican takeover of the House of Representatives and other election victories yesterday may mean that U.S. subsidies aiding ethanol producers will be cut after the party pledged to reduce government spending.

Congressional leadership changes may include Frank Lucas of Oklahoma taking over as chairman of the House Agriculture Committee from Collin Peterson of Minnesota. Democrat Debbie Stabenow may replace Senate farm-panel chairwoman Blanche Lincoln, who lost her race in Arkansas. Poet LLC is the biggest U.S. ethanol producer, followed by Archer Daniels Midland Co.

Lawmakers who made federal-deficit reduction a campaign theme may target money for farm programs, which have been criticized as wasteful, said Saxby Chambliss of Georgia, the top Republican on the Senate Agriculture Committee.

An early test will be whether a lame-duck Congress extends a 45-cent-a-gallon tax credit for blenders of ethanol that added more than $4.7 billion to the deficit last year, Chambliss said. “There are folks who ideologically don’t want to see the tax credit,” and those legislators will be emboldened by the election, Chambliss said in a telephone interview last week.

Tax Compromise

Before the new lawmakers take office in January, Congress may seek a short-term extension of the tax credit at 36 cents a gallon, said Kevin Book, the managing director of Clearview Energy Partners LLC.

That would be less than extensions supported by the industry, including Poet, Archer Daniels and smaller companies including Green Plains Renewable Energy Corp. (GPRE)

Keeping the credit will be “an uphill battle,” said Robert Dinneen, the chief executive officer of the Renewable Fuels Association, a trade group that includes Archer Daniels and Pacific Ethanol Inc.. (PEIX) The key to maintaining support will be linking ethanol production to jobs, he said.

“I don’t want to see plants shut down” and jobs lost should the credit expire, he said.

Biofuels will retain support in Congress because ethanol remains important to the economies of farm-state Republicans, Book of Clearview said. Still, the long-term prognosis for federal support is “grim,” he said.

Bipartisan Effort

Decatur, Illinois-based Archer Daniels has operations in 119 congressional districts. “All companies need to be able to work with whoever is in office,” spokesman Roman Blahoski wrote in an e-mail.

The U.S. is the world’s largest producer and exporter of corn, the main crop used to make ethanol.

Lucas of Oklahoma said in a statement that he hopes to “have the chance to lead the committee as we focus on the needs of agriculture and rural America.”

A more-conservative Congress will spur more skepticism toward President Barack Obama’s efforts on biofuels, environmental regulations and climate change, said Gary Blumenthal, the chief executive officer of World Perspectives Inc., a Washington agricultural consultant.

EPA Oversight

With more Republicans, Congress will be more critical of the Environmental Protection Agency, Chambliss said.

Lucas has called for regular oversight hearings on the EPA. Groups including the American Farm Bureau Federation say the environmental agency puts undue burdens on growers and agribusinesses such as DuPont Co. (DD), a maker of herbicides, and Tyson Foods Inc. (TSN), a livestock and meat producer.

“We’re going to see much more oversight of the EPA and USDA,” Chambliss said. “Farmers are aggravated by the EPA, which stands above the rest in its overreach.”

A divided Congress also may upend plans to pass a new farm bill in 2012, a goal pushed by Peterson, Chambliss said.

The $300 billion, five-year bill, which is set to expire in 2013, authorizes all farm-program spending as well as food stamps and projects that support poor families and rural development. It benefits companies including Bunge Ltd. (BG) and Cargill Inc. by encouraging production, which lowers the cost of raw materials.

To contact the reporter on this story: Alan Bjerga in Washington at abjerga@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.

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