The ethanol tax credit expires at the end of 2011 and two options are on the table currently to address the expiration by either eliminating the ethanol tax credit by the end of June or transitioning the tax program to a variable tax credit.
In a press call May 5, Secretary of Agriculture Tom Vilsack said the administration “is not particularly interested in seeing this industry compromised at this point in time that would end abruptly the incentives that are in place today.” He then referenced what happened when the biodiesel tax credit was not renewed in 2009 and jobs were lost and momentum slowed with limited production capacity.
He said Congress needs to be careful how they tinker with these incentives because if they abruptly end it is a “job-killing step” and it is a “momentum-killing step” at a time when the nation is seeking to wean itself off of reliance on imported oil.
Vilsack said it is the administration’s hope that “Congress looks at the various programs, and if for fiscal reasons has to adjust them, does so over a period of time and allows the industry to adapt and allows the industry to direct those resources in a way that provides more convenient supply and increases potentially demand for the product.”
Along that premise, Sens. Chuck Grassley, R-Iowa, and Kent Conrad, D- N.D., introduced legislation that would extend, through 2016, at descending levels, the volumetric ethanol excise tax credit, or VEETC, which is also known as the blenders’ credit.
In 2012 the ethanol tax credit would fall to 20 cents per gallon and in 2013 to 15 cents per gallon from its current 45 cent level. After 2013, the credit would be linked to the price of oil. If oil in New York were over $50 a barrel, the credit would be 24 cents. It would fall 6 cents for every $10 rise in crude until the credit is wiped out at $90 a barrel.
The bill would extend the ethanol import tariff, through 2016, stepping it down to 20 cents for 2012 and 15 cents for 2013 through 2016.
Vilsack said currently there is momentum in the industry now, with commitments for new biorefineries to be built as well as research projects looking at second and third –generation cellulosic and advanced biofuels. “So we’re headed in the right direction, and I think it’s going to be important for us to continue to send a signal of support for this industry, particularly at a time when Americans are faced with very significant high gas prices,” Vilsack said. “And ethanol basically provides, at least in many parts of the country, a competitively priced and lower produced alternative.”
The major ethanol and corn groups voiced support for the legislation. A joint statement from the National Corn Growers Association, Renewable Fuels Association, Growth Energy and American Coalition for Ethanol, said the legislation smartly and responsibly fosters ethanol’s continued growth and evolution.
“This legislation rightfully recognizes budget constraints by reforming the ethanol tax credit and significantly reducing its cost. Additionally, this bill would improve current tax credits for the installation of blender pumps offering higher level ethanol blends and provide Americans more choice when they fill up. Critically, this legislation would also ensure progress made to commercialize advanced ethanol technologies utilizing new feedstocks such as grasses and municipal solid waste is accelerated,” the groups said.
The bill would modify the alternative fuel refueling property credit to allow the credit for ethanol blends from E20 to E85. The credit would apply to 100% of the cost of the property, so long as dual-use pumps are used partly for alternative fuels. It also would extend, through 2016, the alternative fuel refueling property credit; the cellulosic producers’ tax credit; and the special depreciation allowance for cellulosic biofuel plant property.
The Grassley bill is unlikely to pass as a stand-alone, but the components could find its way into broader energy legislation likely to be passed this month in Congress. The scaled back 20-cent VEETC could help in the Republicans’ desire to scale back spending while also meeting the Democrat and Obama administration’s goals of reforming the ethanol incentives.
Original cosponsors of the Domestic Energy Promotion Act of 2011 include: Conrad, Mike Johanns, R-Neb., Amy Klobuchar, D-Minn., Al Franken, D- Minn., Tim Johnson, D- S.D., Tom Harkin, D-Iowa, and Ben Nelson, D-Neb.