Ethanol Industry Wins One-Year Extension

Over the past couple of weeks there have been growing cries from both sides of the issue to either extend the 45-cents per gal. Volumetric Ethanol Excise Tax Credit (VEETC) or allow the ethanol tax incentives to expire.

The recent decision by the House and Senate to extend VEETC for one year settles the debate, for now.

The ethanol tax extension was rolled into the tax compromise reached by President Barack Obama and Senate Republican leaders which also included an estate tax fix and unemployment benefits.

The deal easily passed in the Senate with 81 senators voting in favor of the deal, a strong show of bipartisan support. In the House, the bill was passed by a narrower margin, but still 277 to 148.

The bill also extends through 2011 the existing 54 cent, secondary tariff on imported ethanol and the related tariff on ethyl tertiary-butyl ether. Brazil remains upset over the continued disadvantage given to its imports and has even threatened to challenge the ethanol tax credits in the World Trade Organization.

The bill also extends through 2011 the 10 cent per gallon producer tax credit for small ethanol producers producing no more 60 million gallon of ethanol a year. The tax credit is applicable to just the first 15 million gallons of production for eligible producers.

In addition, the measure extends through 2011 the $0.50 per gallon alternative fuel credit and the alternative fuel mixture tax credits, excluding black liquor (liquid fuel derived from a pulp or paper manufacturing process) from credit eligibility.

The bill also provides for an expedited process for U.S. biodiesel producers to claim retroactive 2010 credits. In 2009, the U.S. biodiesel industry produced 545 million gallons of biodiesel. Based on August and September production levels, 2010 production is expected to be 345 million gallons, a decline of over 35% from the previous year.

Reform ready

To the ethanol industry the one-year extension gives the market some "certainty." This fall with the thought of the tax credit going away, the ethanol industry was more open to the idea of reform.

Immediately following the House vote, Growth Energy chief executive officer Tom Buis said it will give the group "a chance to work with Congress and the Administration to enact longer term tax policy reforms that will level the playing field in the fuels market."

Growth Energy has lobbied to direct funds away from the 45-cent blender's tax credit which goes to ethanol blenders and instead change it to a production tax which would go to producers. Their Fueling Freedom Plan also would redirect funds to pay for improved infrastructure to help ethanol better compete.

Renewable Fuels Association president Bob Dinneen said, "Extending these important incentives creates the necessary space for meaningful discussion of energy tax policy reform to occur. American ethanol producers are committed to responsible reform of ethanol tax policy, but urge Congress to take this opportunity to reform all energy tax policy. Oil producers and other fossil fuel industries still receive hundreds of billions of dollars in taxpayer support despite decades of subsidies and high profits. Now is the time to put all chips on the table and have an honest debate about the merits of all energy incentives. In such a discussion, ethanol’s benefits would be clear.”

However, additional funds will be harder to come by in the next Congress under the increasing influence of Tea Party's budget conscience ways. The budget watchdogs have joined the chorus of livestock, food and environmental groups criticizing the cost of ethanol programs which will be approximately $6 billion next year.