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Corn about to be processed at the Tall Corn Ethanol plant in Coon Rapids, Iowa. (Charlie Neibergall/AP)
Corn about to be processed at the Tall Corn Ethanol plant in Coon Rapids, Iowa. (Charlie Neibergall/AP)

U.S. Senate blocks cut to ethanol aid Add to ...

The U.S. Senate blocked a move to cut subsidies for ethanol producers in a vote that highlighted a bitter Republican rift on tax policy and pitted oil-producing states against corn-producing neighbours.

Both sides claimed the conservative mantle. Koch Industries, the private conglomerate run by the conservative and publicity-shy Koch brothers, endorsed the effort by Tom Coburn, senator from Oklahoma, to remove the 45-cent-a-gallon ethanol tax credit.

"Our aim is to create a free market where consumers decide winners and losers based on which products they decide to buy, instead of government picking winners and losers based on which friends or products it chooses to subsidize," wrote Philip Ellender, president of Koch Companies Public Sector, in a letter supporting the senator's amendment.

"We hold this position despite the fact that we benefit from these tax credits," said Mr. Ellender. Koch companies produce ethanol in Iowa, although the group also has significant oil interests.

Advocates of subsidies also claimed support from the right. Grover Norquist, president of Americans for Tax Reform, warned Republicans not to vote for what he said was a $6-billion (U.S.) tax increase unless separate tax cuts were approved at the same time.

Chuck Grassley, the Republican senator from Iowa, said that the amendment was "misguided and out of touch".

"We shouldn't be fighting each other over domestic energy sources," he said. "We should be fighting OPEC and the foreign dictators and oil sheiks who have a hold over America's economy and national security. The United States needs to drill for oil at home, encourage more conservation and develop more renewable energy sources like ethanol."

A preliminary vote to consider the measure failed 59 to 40. The amendment, which was attached to an unrelated bill, was always predicted to fail but its level of support was seen as a key test for the future of ethanol subsidies.

Opening the door to action in the House of Representatives, John Boehner, House speaker, said: "We're going to consider the views of all of our members. But clearly, I think changes are on the way."

Democrats are also divided on the issue, though their debate has not been so acrimonious. Dianne Feinstein, Democrat from California, decried the litany of government support for ethanol. "It's a triple crown," she said. "It's a subsidy, it's a mandate, it's a protective tariff. It should go."

But the White House backed the subsidies. Jay Carney, White House spokesman, said: "We are for reforming it, but we are not for repealing it. And we are for reforming it in a way that can cut costs, but not for complete repeal."

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