The U.S. Senate has reached what’s called a bipartisan agreement on ethanol that includes in its provisions phasing out the 45-cent federal credit given for the use of ethanol in gasoline at the end of this month instead of December 31st. The executive director of the Iowa Renewable Fuels Association, Monte Shaw, says they haven’t taken a position on the proposal yet, but there are some concerns.
“What’s frustrating is that this is really happening in a vacuum,” Shaw says. He says there’s been no discussion of the oil subsidies and no discussion of an environmental waiver for E-15 that he says is needed to sell E-15 in the summertime. Shaw says while the ethanol credit would go away, the proposal would make changes in the incentive for pumps used to blend ethanol into gas.
He says it has been an E-85 pump program, and this switches it to a blender pump program that can blend different ethanol mixes at the pump. Shaw says that is positive, but it also reduces the amount given for the pumps by 10-percent, so they aren’t sure of the total impact. Shaw says there’s something else about the proposed bill that raises questions.
Shaw says another “weird” thing about the proposal is that they have sold ethanol to blenders for delivery after July 31st who thought they would be getting a 45-cent credit when they blended it. He says it is unclear if those blenders can break their contract with the tax credit gone, or if they’re stuck with it. The bill includes other things such as a credit for small ethanol producers and for ethanol produced from sources other than corn. Shaw can’t say if the bill would be better in the long-term for ethanol.
Shaw says in the short-term the compromise bill “is a tax increase, it will raise the price of gasoline, and it will absolutely makes us more dependent on foreign oil.” He says that may change in the long-term, but that’s what it looks like short term. Shaw is not sure if the bill would pass the full Senate.
Shaw says it’s hard to tell because there’s not an identified way to bring the bill forward and it could be part of the debt reduction negotiations. But he says the House has said they don’t want any tax increases in the debt reduction package, so it might not get approval there.
Iowa Senator Chuck Grassley, a Republican, released a statement about the ethanol agreement:
“All things considered, it’s good news that an agreement was reached that salvages some of the effort to reduce America’s dependence on foreign oil. I wish it would have included a more robust investment in alternative fuel infrastructure and cellulosic ethanol. Overall, the fact that this happened in a vacuum, rather than in an even-handed debate over all energy tax incentives, will always be a raw deal, especially for taxpayers and renewable fuel producers,” Grassley said.
Democrat Senator Tom Harkin released this statement:
“I commend my Senate colleagues and the ethanol industry for proposing this timely reform of federal ethanol policy. Inclusion of strong support for ethanol refueling infrastructure is especially important for expanding the contributions that ethanol is making to control gas prices, limit our imports of foreign oil and create green jobs in America.
“Contributions of domestic biofuels to our transportation fuel supplies have grown from a few percent in 2000 to about 10 percent today. Those contributions far exceed gasoline offsets provided by any other alternative fuels. Moreover, biofuels also are the most likely candidate to replace the next 10 percent, and more, of gasoline supplies. We need to support that expansion, for our energy security, for cleaner air, and for domestic economic development, by making sure higher blends of ethanol are available and by expanding the vehicles that can use higher blends. I look forward to supporting enactment of this reform package as a critical part of that strategy.”
The Iowa Corn Growers Association released this statement in response to the announcement:
“The bill discontinues the tax credits for ethanol and eliminates the tariff,” said Dean Taylor, Iowa Corn Growers Association President and a farmer from Prairie City. “Corn ethanol voluntarily offered to reform the tax incentive to a variable credit so it would only kick in under harsh market conditions and we continue to be disappointed that tax credits for ethanol are under question while tax credits for other energy sources, including oil, go untouched.”
Up to $280 billion in tax credits and subsidies go to the oil industry and $16 billion go toward the ethanol industry. Currently, ethanol is approximately 10% of our nation’s fuel supply and 20-25% of our domestic fuel production. Studies on the impact of ethanol on prices at the pump support the fact that removing ethanol tax incentives will increase fuel prices for consumers. A recent study released from Iowa State University found that ethanol saved consumers in Iowa an average of $1.37 per gallon on fuel. Nationwide, the savings was 89 cents with an average family budget savings of $800 last year.
“We understand the budget is a driver in the debate. Although, we expect some changes in legislation and we appreciate the work in Congress by a few including Senator Thune to support ethanol.” said Taylor. “We need to think long-term about our nation’s energy needs and consumption. Cutting the legs out from under the corn ethanol industry is going to increase fuel prices for consumers and limit all domestic and renewable energy production from here on out.”
ICGA policy supports a level energy playing field with proactive and fiscally responsible biofuels support.