Legislation introduced recently by Reps. Earl Pomeroy (D-N.D.), John Shimkus (R-Ill.) and 27 co-sponsors would extend for five more years the 45-cents per gallon volumetric ethanol excise tax credit (AKA the blenders' credit) and the 54-cents per gallon tariff on imported ethanol –– particularly sugarcane ethanol from Brazil.
Renewable Fuels Association President Bob Dinneen said that if the bill does not pass and the subsidies are not extended, it would "force 112,000 Americans out of their jobs and shutter nearly two out of every five ethanol plants operating today." Dinneen added that long term extensions of the incentives "are good policy that encourages investment in current and next generation ethanol technologies." The U.S. ethanol industry has enjoyed government support for more than 30 years and many analysts agree that absent government intervention in this market, the ethanol industry likely would not exist.
In addition to extending the two subsidies mentioned above, the Pomeroy-Shimkus proposal also would extend for five years the 10-cents per gallon small producers tax credit and the cellulosic ethanol producer tax credit. Currently, cellulosic ethanol is eligible for both the 45-cents per gallon VEETC as well as an additional 56-cents per gallon production tax credit.
The Brazilian Sugarcane Industry Association (UNICA) responded by pointing out that thanks to generous government incentives and consumption mandates over the last 30 years, "the U.S. has built the world's largest ethanol industry producing more than 12 billion gallons of corn ethanol per year." This contrasts with the situation in Brazil, which has built the world's second-largest producer –– with about 6 billion gallons of capacity, without government subsidies, says UNICA.
"Expert after expert –– including the U.S. Government Accountability Office –– agrees that government subsidies and trade-distorting import taxes are no longer needed when consumers are required to use ethanol," says UNICA in a statement.
"It is puzzling why the biofuels industry continues to defend these subsidies when it has its mandates in place. Tax credits cost taxpayers more than $5 billion per year, and import tariffs convey the message that the ethanol industry is so uncompetitive that it needs protection against foreign competition," says UNICA.
RFA's Dinneen addressed these concerns in a separate statement. Noting that the tax incentives and the renewable fuels standard requiring the use of ethanol are complimentary policies necessary to encourage a domestic industry, he said: "The question is not whether ethanol will be used –– the renewable fuels standard requires it. The question is, from where will the ethanol come? Extending the tax incentives ensures that both the grain-based as well as cellulosic sources of ethanol needed to meet the RFS are produced domestically. Without tax incentives to support domestic production, the [RFS] by itself will simply allow increased U.S. dependence on imported biofuels –– a result that will undermine the U.S. ethanol industry and contribute to additional job losses."
