California bill seeks to eliminate future corn ethanol funding

By Kris Bevill | January 25, 2012

The California State Assembly is expected to vote soon on a watered-down version of a bill initially proposed last year, targeting corn ethanol production for elimination from a state subsidy program.

AB 523 modifies the existing California Ethanol Producer Incentive Program to ensure that any funding provided for the program beyond its existing expiration of July 1, 2013, cannot be used for corn ethanol projects. A previous version of the bill, introduced last year by Republican Assemblyman David Valadao, would have repealed CEPIP and made corn ethanol projects ineligible for any state funding. That version of the bill was defeated by the state assembly’s transportation committee.

The new version, which allows CEPIP to remain in place for its originally scheduled timeframe and allows corn ethanol producers to participate for the program’s current duration, was recently passed by the transportation and appropriations committees and will be voted on by the general assembly within the next week, according to a Valadao spokeswoman.

Currently, CEPIP provides an incentive of 25 cents per gallon of ethanol produced to all eligible California ethanol producers during months when the ethanol crush spread is less than 55 cents per gallon. When the crush spread is greater than $1 per gallon, however, producers are required to pay back the incentive at a rate of 20 cents per gallon of ethanol produced.

CEPIP went into effect in January 2011. In February 2011, Valadao proposed to repeal the program and make corn ethanol projects ineligible for any state funding, basing his proposal on the belief that corn ethanol is responsible for increasing food prices for consumers and negatively impacts livestock and other agricultural industries. The state’s ethanol producers and other supporting industries lobbied aggressively against Valadao’s measure, resulting in its defeat by the state assembly’s transportation committee last May. The committee left the option available for Valadao to re-introduce the bill in 2012, however, which allowed him to propose an amended version of AB 523 earlier this month.  In addition to the less intense CEPIP restrictions, Valadao’s updated version also strikes language which would declare that corn ethanol production is responsible for corn price increases; that the use of corn for ethanol production negatively impacts food prices and agricultural industries; and that corn ethanol has been shown to have little positive impact on the environment.

So far, no formal opposition has been voiced in response to the latest version of AB 523.  The California Cattlemen’s Association wrote in support of the bill, stating that California should be a leader in ending state subsidy programs for corn ethanol. “Efforts led by Sen. Dianne Feinstein, D-Calif., in Congress resulted in the expiration of federal corn ethanol subsidies on Jan. 1, 2012,” the group said in a written statement. “California should join this effort and send a clear message to livestock producers, consumers and the market that the nation’s largest economy will join Congress to end state subsidies for corn ethanol.” The group also noted that while AB 523 would disqualify corn ethanol from receiving state funds, the production of other fuels, including cellulosic ethanol, would continue to be encouraged.