Ethanol Tax Extenders Proposed

Bill extends ethanol incentives five years and cellulosic ethanol credits for an additional three.

As the ethanol sector continues to recover from its 2008 boom, the industry praised legislation introduced by Midwest representatives last week that extends ethanol and cellulosic tax credits.

Representatives Earl Pomeroy, D-N.D., and John Shimkus, R-Ill., introduced the Renewable Fuels Reinvestment Act (RFRA), H.R. 4940, which would extend the $0.45 Volumetric Ethanol Excise Tax Credit (VEETC), commonly called the blenders’ credit, and the secondary tariff on imported ethanol until December 31, 2015. The tax credit is scheduled to expire December 31, 2010.

It would also extend the Small Producers Tax Credit and the Cellulosic Ethanol Production Tax Credit to January 1, 2016. Currently, cellulosic ethanol is eligible for both the $0.45 per gallon VEETC as well as an addition $0.56 per gallon production tax credit. This tax credit expires at the end of 2012.

A Senate companion bill is expected soon.

In a press conference on Capitol Hill, the representatives joined with the two largest ethanol lobbying groups, Growth Energy and the Renewable Fuels Assn., to tout the benefits of the ethanol industry to the overall economy and the costs, specifically outlining loss of jobs, if the incentives aren't extended.

“At a time when our economy is struggling, we cannot afford to let these tax incentives expire and stymie the growth we have seen in our ethanol industry,” Pomeroy said. “This is a bipartisan bill that will promote not only economic growth, but also the transformation of our energy industry from one that is reliant on foreign oil to one that is based on energy that's grown in farm fields in the heartland of America.”

Joel Velasco, Brazilian Sugarcane Industry Association (UNICA) chief representative in North America, criticized the ethanol industry's call for the tax extensions and said the U.S. ethanol industry appears "determined to avoid healthy market-based competition."

Velasco added, "Consumers win when businesses have to compete in an open market, because competition produces higher quality products at lower costs. The same principle holds true for the renewable fuels market. Competition will create a race to the future and generate better options for American consumers."

Expiration impact

Recently the Renewable Fuels Association released a study conducting by John M. Urbanchuk of ENTRIX detailing the impact to the domestic ethanol industry if the tax credits were allowed to expire. Specifically, the report noted that the expiration of the tax incentive would result in the loss of 112,000 jobs in all sectors of the economy, reduce domestic ethanol production by 38%, and cut household income by $4.2 billion.

At the press conference, Growth Energy CEO Tom Buis gave even bleaker job loss projections citing a University of Missouri’s Community Policy Analysis Center study which found that allowing the tariff to lapse would force job losses of 39,506 in the first year, 115,624 in the second year, and 161,384 in the third year – with job losses continuing year-to-year and never regaining.

The decline in economic activity was calculated at $9.2 billion in the first year, $26.4 billion in the second year, and $36.7 billion in the third year and remaining in the double digits during the 10-year projection, hitting $21.2 billion in 2021.

The Missouri study found that the six states that would see the largest declines in economic activity due to removal of the ethanol import tariff are (in order): Iowa, Illinois, Nebraska, Minnesota, Indiana and South Dakota. Manufacturing – already a hard-hit sector of the economy – would see the largest decline, followed by the service industry, financial services, and wholesale trade sectors. The Missouri study predicted steep drops in value for corn, wheat, barley and sorghum.

A separate study conducted by IHS Global Insight predicted that without the tariff, Brazilian ethanol imports would climb to as high as 2 billion gallons a year – but displace domestic ethanol, and virtually no oil. The Global Insight study also predicted a 24-month plunge in corn prices due to the decrease in domestic ethanol production. The RFA study indicated that reduced demand for corn resulting from VEETC expiration would lead to an 8% drop in prices, or about $0.30/bushel at today’s prices.

In a statement from the National Corn Growers Assn., in 2009, the ethanol industry returned an additional $3.4 billion to the Federal Treasury than was spent on VEETC. This figure also does not take into account additional positive returns in the form of increased state and local taxes, increases in household income and savings resulting from decreased oil imports.

Biodiesel tax extension held up

Thursday, March 18, President Barack Obama signed a jobs bill into law, but it was not the bill which included the biodiesel tax extension.

The Senate passed a version of H.R. 4213 that included a retroactive extension of the biodiesel tax credit on March 10. Hill sources say that measure remains on hold as Congress was wrapped up in debate over the health care bill and now heads into its Easter recess.

A statement from the American Soybean Assn. stated the tax extenders package is being held up because the provisions used to offset the cost of the tax extenders were also being considered for use to offset costs incurred by the health care bill. House leaders have indicated that they do not intend to move forward on the tax extenders until the health care bill and the offsets issues associated with it are resolved.

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