Ethanol Incentives at Risk

As Congress considers various pieces of energy legislation, from oil subsidies to offshore drilling to nuclear power, two bills were introduced last week that would fundamentally alter current federal ethanol incentives.

One, co-sponsored by Sen. Tim Johnson, D-S.D., would reform them. The other, brought by Republican Sen. Tom Coburn of Oklahoma and Democratic Sen. Dianne Feinstein of California, would end them.

At the forefront of the debate is the Volumetric Ethanol Excise Tax Credit (VEETC), which pays fuel blenders 45 cents for every gallon of ethanol they blend into the fuel supply. The Government Accountability Office estimates that the credit costs the Treasury almost $6 billion in forgone tax revenue each year.

Under the Johnson-backed Domestic Energy Promotion Act of 2011, introduced by Republican Chuck Grassley of Iowa, the credit would be reduced, then pegged to the price of oil, then ended altogether.

It would fall to 15 cents per gallon by 2013, and from 2014-2016 it would vary depending on the price of sweet crude. If oil were going for $50 per barrel or less, for instance, the credit would be 30 cents per gallon. If oil topped $90, it would be zero. And beginning in 2017, the credit would disappear entirely.

“Investing in ethanol and biomass is investing in the renewable fuels of today and tomorrow,” Johnson said in a prepared statement. “Our budget priorities must reflect this fact.”

Other provisions of the bill ensure continued support for domestic ethanol. It would:

  • Extend through 2016 the tax credit for ethanol derived from crop waste and other cellulosic sources, now set at $1.01 per gallon, as well as a depreciation allowance for cellulosic plants.
  • Extend through 2016 the 30 percent tax credit for alternative fuel stations.
  • Reduce the tariff on imported ethanol from 54 cents per gallon to 20 cents in 2012 and 15 cents thereafter.

Support for cellulosic ethanol is key, said Brian Jennings, executive director of the American Coalition for Ethanol.

Including these provisions “enables us to build an alliance with the cellulosic ethanol industry, so we can attract more votes,” he said.

The office of Sen. John Thune, R-S.D., released a statement saying that he supports VEETC reform.

“While not a co-sponsor of the recently introduced legislation, Sen. Thune will maintain a leading role in this discussion as Congress considers various proposals to modify existing federal biofuels policy,” the statement said.

Meanwhile, Coburn – a fiscal hawk from oil country – and Feinstein – a liberal environmentalist – have attached to a small-business bill an amendment that would end both the tax credit and the import tariff.

“As our nation faces a crushing debt burden, rising gas prices and the prospect of serious inflation, continuing our parochial ethanol policy that increases the cost of energy and food is irresponsible,” Coburn said in a prepared statement.

The opponents take issue with the fact that domestic ethanol is protected by an excise tax credit, an import tariff and a legally binding federal renewable fuel standard. Feinstein called it the “triple crown of government intervention.”

The industry says it needs better market access, and – recognizing that VEETC is set to expire at the end of the year – has pushed reform as an alternative to elimination.

For his part, Johnson is behind at least two other biofuels bills under consideration. Earlier this year, he co-sponsored the Biofuels Market Expansion Act, which would require that all cars and light trucks sold in the U.S. are flex-fuel vehicles. It also would establish a grant program for ethanol blender pumps and expand federal loan guarantees for ethanol pipelines. That bill – indistinguishable from the trade group Growth Energy’s “Fueling Freedom Plan” – still is in committee.

Read more posts in News Articles • Tagged as • Permalink