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Thursday, July 07, 2011

The Latest Ethanol Compromise:  Who won?  Who lost?


Late in June the U.S. Senate first voted to retain ethanol subsidies and trade protection, and the following day turned around and eliminated them.  However the legislative action was an amendment to a bill that was going no where, and the action seemed to be symbolic.  Nevertheless, a major ethanol opponent and two ethanol supporters negotiated a new agreement on how the Senate would treat ethanol.  See if you can tell whether the ethanol supporters or the opponents won the compromise.

The facets of the federal program to support ethanol are keyed around a tax credit given to petroleum fuel blenders’ who add ethanol to their fuel blend.  Currently, the credit is 45 cents per gallon, and was set to expire December 31, unless it was renewed by Congress.  An additional measure is a 54 cent per gallon tariff applied to any imported ethanol, in an effort to keep ethanol from Brazil from competing with the financially-challenged US ethanol industry which has had to pay high prices for corn.

The June action in the Senate that flipped and flopped on the ethanol issue had set a date of July 31 for all ethanol supports to be terminated.  The new agreement also uses the July 31 dates to remove both the subsidy program and the tariff.  In a news release issued by Sen. Diane Feinstein (D-CA), the details of the compromise look like this:

• The 45-cent-per-gallon ethanol blender credit (VEETC) will be repealed on July 31, saving $2 billion through the remainder of 2011.
• The 54-cent-per-gallon tariff on ethanol imports will also expire on July 31.
• The tax credit for cellulosic biofuel production, currently set to expire at the end of 2012, will be extended for three years, with annual caps on gallons, and will be expanded to include promising fuels from algae. This will allow the non-corn advanced biofuels industry— the cleanest form of vehicle fuel—to emerge and develop.
• Reduced tax credits for alternative fueling infrastructure, including electricity charging stations and natural gas fueling stations, will be extended through 2014. The small-producer tax credit will expire at the end of 2012, with a reduction in the per-gallon credit.
• Repeal of the 45-cent per gallon ethanol blender credit (VEETC) on July 31, saving $2 billion over the next five months.

• Repeal of the 54-cent per gallon tariff on ethanol imports on July 31.
• Cellulosic Biofuel Production Tax Credit (currently expires 12/31/2012) will have a 3 year extension of $1.01 per gallon credit (to 12/31/2015). 
• Annual cap of 50 million gallons of cellulosic ethanol in 2013, 100 million gallons in 2014, and 155 million gallons in 2015.  Unused gallons roll to the next year.
• Includes depreciation allowance for cellulosic plants, and expands the definition of cellulosic biofuel to include fuels from algae.
• Alternative Fueling Infrastructure Tax Credit (currently expires 12/31/2011).  It will have a 3 year extension (to 12/31/2014), modified as proposed in S. 1185.
• Investment Tax Credit reduced from 30% to 20%, effective 1/1/2012.  It covers technology neutral investments in electricity charging stations, blender pumps, or natural gas fueling stations, as specified in 26 USC 30C.  Joint Committee on Taxation estimates that approximately half of qualifying investments will be in non-ethanol infrastructure.
• Small Producer Tax Credit (currently expires 12/31/2011); there is a 1 year extension (to 12/31/2012).  Financially, the per-gallon credit is reduced from 10 cents to 7 cents per gallon.

Senator Feinstein called upon the Senate leadership to call her compromise to a vote, saying, “The compromise invests $668 million in these tax credit extensions, fully offset, while providing $1.33 billion in deficit reduction.  If Congress fails to enact this proposal before it adjourns for August recess, the substantial levels of deficit reduction and investment achieved by this compromise will no longer be possible, and we cannot commit our support after that point.”

What about the National Corn Growers Association position on the compromise?  It politely thanked two senators who had been ethanol supporters:

National Corn Growers Association President Bart Schott released the following statement in response to today’s announcement of a bipartisan compromise on ethanol tax incentives. Senators John Thune (R-SD) and Amy Klobuchar (D-MN) have tirelessly led efforts on behalf of the ethanol industry for the past several weeks.

“NCGA is grateful to Senators Thune and Klobuchar for the hard work and dedication they have put in to reaching a final deal. There are many positive components of this compromise that are important to the ethanol industry and rural America. The final compromise reflects both the importance of the ethanol industry to achieve energy independence and the need for fiscal responsibility. The ethanol industry continues to have a positive impact on all parts of America, and we are committed to working with Congress in the future on steps that can move the ethanol industry and the nation’s economy forward.

What about the Renewable Fuels Association?

Bob Dinneen, President and CEO of the Renewable Fuels Association (RFA) offered the following reaction:

“This bipartisan effort to find common ground is the kind of sensible policy making American voters desperately want from their elected leaders. We greatly appreciate the leadership of Senators Klobuchar and Thune in doggedly pursuing a solution to this impasse. Walking away from investments made in America’s ethanol industry cold turkey would jeopardize the future of biofuel production in America, including stifling the progress of advanced and cellulosic ethanol technologies.
“A particularly important part of this agreement is the commitment to continue the evolution of the industry to new technologies and new feedstocks for cellulosic ethanol. We are pleased the agreement recognizes the importance of cellulosic ethanol by committing $305 million to this effort. However, we are concerned that capping cellulosic ethanol development sends the wrong signal and we will continue to work with the Congress and the Obama Administration to address this anomaly in as this process continues.”

What about the American Coalition for Ethanol?

Brian Jennings, Executive Vice President of the American Coalition for Ethanol, released the following statement.

“We thank Senators John Thune (R-SD) and Amy Klobuchar (D-MN) for their support and leadership in negotiating this compromise, and we echo the sentiments of Senator Thune who recently called the legislation „trying to make the best of a bad situation.? Despite its shortcomings, this compromise represents the art of the possible given the temperament of Congress and buys us time to tackle unfinished business by building a new and broader coalition. ACE will support efforts in Congress to enact this legislation into law by the end of July.”

“ACE is pleased with the three-year blender pump tax credit, a modest but important down-payment on consumer fuel choice. We will work with marketers to take full advantage of the improved incentives to convert to blender pumps. ACE is also grateful that the Small Ethanol Producer Tax Credit, which is crucial for many of our independent and farmer-owned members, was extended for one year.”

“We are disappointed that the variable incentive, a key and low-cost safety net for independent and farmer-owned plants facing market volatility that Senators Klobuchar and Thune included in their original legislation, did not make it into this compromise.

“Regardless of how some will try to characterize eliminating VEETC, doing so will raise gas taxes on ethanol blended fuel. Moreover, it is an outrage that some elected officials continue to protect billions in subsidies for the oil industry, including a very recent vote against cutting $4 billion in Big Oil tax subsidies. It is time for Congress to repeal oil tax subsidies.”

Who won?  Who lost?  What is your reaction?  The floor is yours…..

While it still needs official votes in the Senate and House, there is a new compromise over ethanol, which one side was victorious in securing agreement to end ethanol subsidies and tariffs at the end of July.  Ethanol supporters were able to secure $688 million for a 7 cent tax credit for small ethanol plants, continuation of the $1 tax credit on any cellulosic ethanol that might be made,  but a ratcheting down of the amount of cellulosic ethanol that can be made.

Posted by Stu Ellis on 07/07 at 08:48 PM | Permalink

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