Ethanol priorities: Blender's credit, mid-level blends

By Ryan C. Christiansen | January 12, 2009
Web exclusive posted Feb. 2, 2009, at 11:17 a.m. CST

The Volumetric Ethanol Excise Tax Credit, more commonly known as the "blender's credit," which was reduced from $.51 cents per gallon to $.45 cents per gallon on Jan. 1 is set to expire Dec. 31, 2010, according to the American Coalition for Ethanol. Renewing this credit is a top priority for the ethanol industry in 2009, said Todd Sneller, administrator for the Nebraska Ethanol Board, Sneller spoke during a Nebraska Ethanol Board update webcast Jan. 30.

Sneller said the blender's credit "remains really one of the critical cornerstones of ethanol production economics because it provides the ability to effectively market ethanol into a marketplace where, in many areas, it's viewed as a discretionary—rather than a required—fuel. And so the tax incentive is very important (and) in all likelihood will need to be dealt with in 2009 to make sure that anybody evaluating ethanol development will know, with some degree of certainty, what the status of that incentive will be going forward."

The next top priority for the ethanol industry is to ensure that mid-level and E85 ethanol blends become more widely adopted. Sneller noted that the ethanol industry currently provides the equivalent of E10 for all of the non-exempt petroleum gasoline used in the U.S. and yet the ethanol industry continues to grow to help meet the renewable fuel standard (RFS). "As we go forward," he said, "the question is, ‘How will we move that additional ethanol into the marketplace? In what forms will that be used?' Moving beyond the 10 percent number today is indeed a top priority."

There has been a lot of discussion about whether E10 should be increased to E12, E13, E15, or E20, Sneller said. "There are a variety of opinions on that," he said, "but clearly the important thing here is that if we can get to some incremental number above E10—whether it is E12 or E13—we can probably do that with the full support of domestic automakers and with the full knowledge that the dispensing equipment that is located all over the country can accommodate blends up to about 15 percent volume ethanol without making any changes."

Increased use of E85 is also important. Sneller noted there are approximately 8 million flex-fuel vehicles on the road in the U.S. and the number is increasing by 1.5 million per year. However, automakers are reluctant to produce too many flex-fuel vehicles until the infrastructure for pumping E85 is in place. "The domestic automakers pledge to make about 50 percent of their vehicles by 2010 as flex-fuel vehicle models," Sneller said, "provided that infrastructure for E85 continues to increase in the U.S. They don't want to put those vehicles out there and see (petroleum) gasoline used in them. They do incur a small incremental cost in making those vehicles and so they want to make sure that those vehicles are going to be used with the higher ethanol blends as we go forward."

Sneller said a new challenge for the ethanol industry is to understand how to capture value for renewable identification numbers. "A year ago, [the RIN] was simply looked at as a compliance mechanism that had very little incremental value beyond its compliance value," Sneller said. "They maybe were worth a penny or so. Just recently, about 30 days ago, we started to see a bump in RIN values up to the $.05-cent, $.06-cent, and $.07-cent-per-gallon value (and) about a week ago that started to surge (to) $.10-cents (and) today some RINs are trading at $.15 cents per gallon. They have become a fundamental factor in marketing decisions (and) ethanol producers are trying to do a better job of understanding what's creating that dynamic and how they can capture that value themselves."