Groups Oppose Plan To Phase Out Ethanol Industry Incentives

Renewable Fuels Association, National Corn Growers Association and Farm Bureau are distancing themselves from a proposal made by ethanol promotion group, Growth Energy, to phase out ethanol subsidies.

Published on: Jul 18, 2010

Iowa leaders, along with the leaders of some national farm and biofuels organizations, aren't endorsing a plan put forth by an ethanol industry group that is calling for a change in the way ethanol tax incentives are used and an eventual phase out of government support for ethanol.

Growth Energy, a group founded by ethanol makers who have an interest in next generation ethanol, is proposing to phase out the industry's 45 cent per gallon federal subsidy and shift the money toward installing "blender" pumps at service stations and convenience stores. The pumps can dispense various mixtures of ethanol and gasoline, allowing motorists to use higher ethanol blends than the commonly used E10 or 10% ethanol blend.

Another ethanol promotion group, the Renewable Fuels Association, has sided with the National Corn Growers Association and the American Farm Bureau in arguing that the subsidy should be extended the way it is. The 45 cent per gallon subsidy is set to expire at the end of the year, unless congress extends the legislation. Collin Petersen, D-Minn., who is chairman of the U.S. House Ag Committee, has been floating an idea similar to Growth Energy's proposal.

Congressional Budget Office study says tax credit isn't needed

The dispute comes as the Senate is considering taking up an energy bill that could limit some greenhouse gas emissions and promote renewable power and biofuels. Because of federal usage mandates that are already law, known as the Renewable Fuel Standard, the 45 cent tax credit is not needed, says a study released last week by the Congressional Budget Office. The tax credit goes to refiners and other companies, based on the ethanol they add to gasoline.

Leaders of Growth Energy are calling on Congress and the Obama administration to get serious about stopping America's addiction to foreign oil. Former Iowa Congressman Jim Nussle, who is an advisor to Growth Energy, says "Policymakers in Washington know what needs to be done. They just need to create the policy options to accomplish it. That's what this is about. What we at Growth Energy are proposing is for out leaders in Washington to try something that's a little bit different. That is, taking away the ethanol subsidy and using that money to build an ethanol infrastructure."

Thus, Growth Energy wants to swap ethanol subsidies for a new program to increase the number of blender pumps in the United States. This would promote the use of flexible-fuel vehicles and improve the country's biofuels distribution network, says Nussle.

Swap ethanol subsides for new program to increase blender pumps?

Senator Tom Harkin, D-Ia., praised Growth Energy for its "creative thinking" but didn't endorse the plan. "The exact method for how we expand ethanol markets is worth more discussion," he says. Senator Charles Grassley, R-Ia., wants to preserve the existing credit and is sponsoring legislation that would provide a 5-year extension.

U.S. Agriculture Secretary Tom Vilsack, who worked hard to promote ethanol and other renewable energy when he was Iowa Governor and continues to do so as USDA chief, says he "welcomes new ideas from the biofuels industry, including those that address some of the infrastructure challenges with biofuels."

Jeff Broin, co-chair of Growth Energy, defended his group's proposal to spend the ethanol subsidy on pump installation, saying "the time has come to transition to an open market where consumers can choose their fuel." Broin is chief executive of Poet LLC, a leading producer of ethanol from corn grain is developing a commercially viable process to make cellulosic ethanol from corn cobs. Most of Growth Energy's membership is involved in the cutting edge of cellulosic ethanol development.

Increasing the number of blender pumps and flex-fuel vehicles that can handle and use high levels of ethanol in gasoline could aid the growth of the next generation versions of ethanol, while also smoothing the way for increased growth in corn ethanol production, says Broin. The future market for corn ethanol is limited to 15 billion gallons annually, under federal usage mandates.

Other groups disagree on what should be done with subsidy

"Now is not the time to add uncertainty and complexity to the energy and tax debate," says Bob Dinneen, president of the Renewable Fuels Association, another group of ethanol producers and others involved in industry promotion. Darrin Ihnen, a South Dakota farmer who is president of the National Corn Growers Association, says it's too late in the year for Congress to consider anything but an extension of the existing tax credit.

Currently, the U.S. Environmental Protection Agency only allows 10% ethanol or E10 blends with gasoline to be used in non-flex fuel vehicles. However, EPA is considering a petition from Growth Energy to raise the limit to 15%. A decision on that issue, which EPA has already postponed a couple of times pending the outcome of more studies, is expected to be announced by EPA this fall.

Culver challenges CBO report that biofuel credits no longer needed

Iowa Governor Chet Culver on July 15 said he "continues to be very disappointed by Washington" when it comes to support of biofuels including ethanol and biodiesel.  The Congressional Budget Office report released July 14 concludes the biofuels industry no longer needs tax credits to drive production. It's a position Culver says he's concerned will severely hurt Iowa farmers who have increased corn and soybean production to meet the nation's fuel needs.

"The CBO report is deeply flawed because it fails to take into account the economic benefits to our farmers who grow the corn and soybeans that go into these clean, renewable biofuels," says Culver. "The report also gives insufficient consideration to the national security benefits of cutting free from our dependence on foreign oil." 

The report states that while production credits for ethanol are provided to blenders, most of the income ultimately flows to producers of ethanol and to the farmers who grow the corn—in the form of higher prices received for their products.  ("Using Biofuel Tax Credits to Achieve Energy and Environmental Policy Goals," Congressional Budget Office, July 14, 2008, at p. viii).

Culver: CBO report is also flawed in what is says about biodiesel

The report reaches a similar conclusion on biodiesel: "Until recently, the producers of biodiesel … received a tax credit of one dollar per gallon. Although that credit expired in December 2009, the Congressional Budget Office included it in the analysis to provide information about the value of the credit should policymakers, as they have at other times, decide to reinstate it."

Culver, co-chair of the Governors' Biofuels Coalition, has been an active voice for Midwest farmers on biofuels issues in recent weeks. In June he delivered a letter to Environmental Protection Agency Director Lisa Jackson requesting an expedited process for the E-15 gasoline blend and quick action on Renewable Fuel Standard rules known as "RFS2."

Last week Culver delivered a letter to Department of Energy officials in Boston at the National Governors' Association annual meeting encouraging action on a range of renewable energy issues.