Ethanol Subsidy Expiration Won’t Largely Impact Industry

DC Dialogue

Anti-ethanol opponents now turn focus to changing RFS, while ethanol industry fights for cellulosic tax credit extension.

Published on: January 6, 2012

The Volumetric Ethanol Excise Tax Credit (VEETC) which gives blenders 45 cents to blend ethanol into the gasoline supply officially expired at the end of 2011. Jeff Broin, chief executive officer of POET, the nation’s largest domestic ethanol producer, said VEETC’s expiration “won’t have a significant impact” on the industry which has become more efficient over the last 30 years at the same time the tax credit has decreased.

Broin said without the tax credit, ethanol will still provide a 16-cent cheaper alternative. However, consumers could pay an estimated 4 cents higher at the pump as the tax credit disappears, he added.

Interestingly, E85, a blend of 85% ethanol, could see prices increase more significantly with the tax credit expiration and become less competitive. Broin expects E85 prices could jump 40 cents and may not allow for buyers to purchase E85 at an economical discount which allows for the lower fuel efficiency of the blend.

The VEETC expiration received praises from many livestock and environmental groups, as well as taxpayer groups who have eyed the tariff as a mechanism to save in tight budgetary times.

Joel Brandenberger, president of the National Turkey Federation, said the federation “will continue to remain diligent to ensure the VEETC does not reappear and will continue to push for real reform of the Renewable Fuels Standard.”

The RFS mandates that close to 14 billion gallons of renewable fuel be blended into the nation’s fuel supply, but that includes advanced biofuels and biodiesel. Increased ethanol production is not expected in 2012 and production is expected to remain steady.

Hussein Allidina, head of commodity research at Morgan Stanley, said his consultants in Washington, D.C. don’t see any real risk to the RFS changing anytime in the near future, partially because of the other pressing details the government needs to focus on.

Gawain Kripke, director of Policy & Research at Oxfam America, said his group looks forward to working with Congress toward “creating a more effective and rational U.S. biofuels policy that supports both alternative energy sources and global food security.”

Stephen Ellis, vice president of Taxpayers for Common Sense, said there’s no guarantee that ethanol boosters won’t try to slip a renewal into a tax package expected early in 2012. “Now efforts turn to preventing the new and more inventive subsidies that the ethanol groups are peddling,” he said.

Broin called for the cellulosic tax credit to be extended to keep investment in the immature segment of the industry. “I think we will see [the cellulosic tax credit] extended, although in a decreasing fashion,” Broin noted.

Extension of cellulosic biofuel tax credits now and eligibility for algae biofuels are needed to help companies raise financing for first-of-a-kind biorefineries, according to the Biotechnology Industry Organization (BIO).

Senators Bill Nelson, D-Fla., Jeff Bingaman, D-N.M., John Kerry, D-Mass., Al Franken, D- Minn., Debbie Stabenow, D-Mich., Jeff Merkley, D-Ore., Ron Wyden, D-Ore., and Tom Udall D-N.M., recently requested the Senate leadership for this extension.

Brent Erickson, executive vice president of BIO’s Industrial & Environmental Section, stated, “The advanced biofuels industry is at an inflection point and is rapidly maturing because biotech companies have made significant private investments to commercialize the technology. Additional investment is needed to build commercial scale biorefineries to produce these advanced biofuels. The cellulosic biofuels production tax credit and the accelerated depreciation for cellulosic biofuel property have the potential to unlock this vital project financing. Algae biofuels also need to be eligible for these credits. But the December 31, 2012, expiration date for these credits prevents project developers from leveraging their full value.”

BIO asked that any tax package that considers effectively expired provisions extend the cellulosic biofuels production tax credit and accelerated depreciation for cellulosic biofuel property, and include eligibility of algae-based biofuels.

The biodiesel tax credit lapsed in 2010, resulting in a significant drop in production, job losses and some plant closings. Eventually, it was extended retroactively for 2010 and through 2011.Biodiesel leaders hope the tax credit can again be reinstated in 2012. A draft package of tax extenders, recently circulated by Senate leaders, includes the biodiesel incentive.