Ethanol Deal is Best the Industry Could Get

Regardless of what happens gasoline is going to be higher.

Published on: Jul 11, 2011

A Senate deal to end the ethanol blenders credit this month is the best deal the industry feels it can get, and one likely to be part of a huge debt ceiling compromise.

The nearly $6 billion a year ethanol subsidy will be gone immediately as will the tariff on imported ethanol with a consolation $668 million in continued help for cellulosic ethanol and blender pumps plus $1.3 billion in deficit reduction. Renewable Fuels' Matt Hartwig says it's the best his industry could get.

"Certainly we would have preferred a longer phase down of the tax incentive and a greater investment in infrastructure and cellulosic ethanol," Hartwig said. "But it is better than cutting off investment in ethanol technologies cold turkey."

That's what Senators Dianne Feinstein, D-Calif., and Tom Coburn, R-Okla., almost succeeded in doing in an earlier amendment.

While other plans are more gradual, Hartwig says Feinstein's deal with Agriculture Senators Amy Klobuchar, D-Minn., and John Thune, R-S.D., is the deal that's going, likely as part of a huge debt measure.

"It is silly season on Capitol Hill," Hartwig said. "The debt discussion is causing everybody to panic and scramble to include all their pet peeve projects in this deal. There are a lot of ultimatums; this can't be in, this has to be in being made. What this deal does is claw back as much investment as Senators Thune and Klobuchar thought they could get. Remember there was a vote in which 73 Senators said we ought to end it immediately on July 1. This is a better deal than going cold turkey with no investment in infrastructure and with no continuation of our investment in cellulosic ethanol."

Without the ethanol deal, Hartwig says the blenders credit gets axed anyway when it expires at the end of the year. But either way, gas prices are headed higher.

"Removing the 45 cent tax incentive means that should it go away the very next day the taxes on a gallon of 10% blended gasoline will rise by four and a half cents," Hartwig said. "I don't know any gasoline company or oil company that is going to absorb a four and a half cent tax increase without passing it on to the consumer."

But Hartwig argues ethanol-blended gas will still be cheaper than conventional gasoline alone, since ethanol's cheaper to make and sells for less wholesale.