Ethanol Industry Seeks to Re-Tool Federal Subsidies

Representatives of the ethanol industry and the National Corn Growers Association have been meeting with members of Congress and Obama administration officials to explain and discuss proposals that would extend and eventually modify the ethanol tax incentive program.

Representatives of the ethanol industry and the National Corn Growers Association have been meeting with members of Congress and Obama administration officials to explain and discuss proposals that would extend and eventually modify the ethanol tax incentive program. Separately, a letter on this subject to President Obama and all members of Congress, U.S. lawmakers, was signed by the Renewable Fuels Association, Growth Energy, American Coalition for Ethanol and NCGA. Among the proposals being discussed are:

  • Modified refundable tax credit program: After a one-year transition, the current blenders' credit (called the volumetric ethanol excise tax credit or VEETC) would be changed to a producer tax credit going directly to ethanol plants. Currently, VEETC is scheduled to expire at the end of this year.
  • Tax credit payment rate: The approach by the ethanol industry would be to start with a one-year extension of the current 45-cent tax credit and then reduce the amount, with the money (or most of it) resulting from the reduction going to developing a more complete infrastructure, including blender pumps and a pipeline to connect production centers in the Midwest to major consuming areas on the East Coast. 

House Ways and Means Committee Chairman Sander Levin (D-Mich.) has talked about reducing the current tax credit rate by 20 percent, or 9 cents per gallon, for a savings of around $1 billion. A bill (S 3576) introduced by Sens. Amy Klobuchar (D-Minn.) and Tim Johnson (D-S.D.) would set the amount of the producer credit at 25 cents per gallon, for a period of about four years. Regardless of the amount of any reduction, the ethanol industry says it will support such a move only if the savings or most of the savings from the tax reduction rate were to be re-programmed to ethanol infrastructure spending.

Move to a harmonized import tariff: The current ethanol import tariff is 54 cents per gallon. Under the proposal, the import tariff would be harmonized to whatever is the level for the ethanol tax credit refund. However, once the program moved to a domestic tax credit refund, the import tariff would likely end because Brazilian operators would not be eligible for the U.S. domestic ethanol facility tax credit refund.

Infrastructure funding: The savings from the difference between the current 45-cent ethanol credit and whatever the revised tax credit refund rate is set at would go to market access infrastructure development needs such as blender pumps, ethanol storage tanks and to accelerate development of flex-fuel vehicles that can run on heavier ethanol volumes. Loan guarantees would be offered to help build ethanol pipelines.

Making corn starch ethanol eligible to be an advanced biofuel: The Energy Independence and Security Act of 2007 categorizes biofuels as conventional, advanced and cellulosic. Ethanol falls into the "conventional" category. Supporters note that if the definition of "advanced" were to be rewritten in a way that included corn-based ethanol, the amount of ethanol included each year in the nation's renewable standard would increase and more ethanol could be produced and sold.

Budget offsets: To date, there are no firm figures regarding the amount of or specific budget offsets that will be needed to pay for these proposals, although some sources estimate that around $20 billion of budget offsets have been identified and discussed.

Just how and when Congress might take up the issue of ethanol tax credits and import tariffs –– or any of the other ethanol industry proposals –– remains unknown at this time. Unless Congress acts during its post-election lame duck session, both of these supports will expire at midnight Dec. 31.

What is clear is that farm-state members will try mightily to include at least a one-year extension of the ethanol blender credit program, and program reform language as detailed above, or "placeholder" language for the reforms to be decided on later. And, they will seek to attach the proposal to a high-priority bill that Congress must act upon in the lame duck session. The most likely legislative vehicle would be the must-pass, omnibus appropriations measure that Congress will need to approve to keep the federal government operating in fiscal 2011. 

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