The debate over federal tax credits for ethanol continues to dominate conversations in Washington D.C. as senators gear up for more votes on the issue in the coming weeks. On June 14, the Senate defeated an amendment introduced by Sen. Tom Coburn, R-Okla., that would immediately repeal both the Volumetric Ethanol Excise Tax Credit and the ethanol import tariff. However, the initial amendment, co-sponsored by Sen. Dianne Feinstein, D-Calif., is still alive and could be voted on by June 24, according to comments made by Feinstein during a June 14 floor statement.

Also on the table is a popular bill introduced June 13 by Sens. John Thune, R-S.D., and Amy Klobuchar, D-Minn., which would modify the existing fixed-rate VEETC to a reduced variable credit beginning July 1.  In exchange for the hasty modification to the program, the bill calls for additional incentives for biofuels infrastructure expansion. A vote on that bill could also happen as soon as June 24, according to some reports, although it remains unclear exactly when a vote will be scheduled.

Reform of the VEETC program is almost guaranteed at this point, according to outside analysts and ethanol industry groups. Washington D.C.-based analysis firm ClearView Energy Partners LLC said it expects VEETC reform to remain a major issue until policy changes are enacted or until next year’s presidential election, whichever comes first. ClearView is advising its clients not to expect a “wipeout” of ethanol subsidies anytime soon though, because the top 10 ethanol-producing states account for more than the one-third of the 270 Electoral College votes needed to win the presidency.  Therefore, it is unlikely that any presidential candidate would side against ethanol prior to an election, the firm said.

Aside from escalating budgetary concerns, analysts and industry representatives agree that there is only one reason why the ethanol industry has agreed to such a significant shift in tax credit support: infrastructure. ClearView analysts said that, other than feedstock price shocks, there may be no greater threat to the industry than the blend wall, and the industry needs help from the government to move beyond it. “Selling mandated volumes of 13.7 billion gallons per year of ethanol into an addressable market that can only absorb 13.5 billion gallons per year is, all other things being equal, a prescription for profit erosion and/or losses,” the firm’s analysts said in a report. “E85 demand is not likely to soak up the differential anytime soon. … For retailers to be willing to move up to E15, they need new equipment: blender pumps.” The Thune-Klobuchar bill extends the current 30 percent tax credit for E85 infrastructure projects through 2016 and extends the incentive to include blender pumps.

On a larger scale, the issue of ethanol subsidies has become an indicator of legislators’ willingness to entertain deficit reform measures in general, according to several senators. Democrats immediately pounced on the 34 Senate Republicans who voted to repeal ethanol subsidies on June 14, calling them out for breaking from a Republican pledge not to raise taxes of any sort. Sen. Charles Schumer, D-N.Y., said in a June 15 conference call that the Republican vote was a watershed moment that indicated all tax expenditures are now fair game in budget negotiations. He then pressed for the elimination of petroleum subsidies, an issue that was defeated once by Republicans earlier this year. “If you think ethanol subsidies are a waste, there’s no way you can justify the handouts to oil companies who have seen record profits,” he said.