Debt-Ceiling Deal Imperils Energy Subsidies

NationalJournal, Amy Harder

When President Obama and congressional leaders finally get around to striking a deal to raise the debt ceiling, it will likely include measures repealing at least some ethanol subsidies and oil and gas tax breaks, according to a majority of National Journal Energy and Environment Insiders.

Most insiders agree that renewable energy subsidies will get a reprieve this time around but will be front and center on the chopping block later this year. A whopping 70% said ethanol subsidies will be cut as part of a debt-ceiling deal. The experts cite two reasons: A 73-27 symbolic messaging Senate vote in June to repeal those subsidies and a deal announced last week by a trio of senators that puts most of the remaining ethanol subsidy to the deficit and keeps a sliver of it for biofuels and other renewable energy industries.

“The recent Senate vote to eliminate ethanol tax subsidies shows that Congress is willing to consider eliminating subsidies previously considered sacrosanct if they have large revenue impacts and no legitimate public policy rationale, like ethanol policy,” one insider said.

Essentially all energy subsidies except for oil and gas tax breaks ingrained in the tax code are set to expire at the end of this year anyway unless Congress renews them. Ethanol has triggered a political firestorm in the heat of the budget battles because of its hefty $5.4B to $6B annual price tag. Wind and solar subsidies, by contrast, have not garnered nearly the political opposition given the price tag is much smaller (about half the cost of ethanol subsidies, depending on what is included in the subsidy definition). That may bode well for the renewable industry now, but insiders warn those subsidies will probably not make it to 2012.