Legislation calls for tax incentive extensions

By Holly Jessen | April 15, 2010
March was a busy month for ethanol industry leaders pushing for an extension to three tax incentives and the secondary tariff on imported ethanol.

The biggest news was the Renewable Fuels Reinvestment Act, proposed in the House by Reps. Earl Pomeroy, D-N.D., and John Shimkus, R-Ill. If passed, this bill would add five years each to the Volumetric Ethanol Excise Tax Credit, the Small Ethanol Producers Tax Credit and the tariff on imported ethanol. The bill would also tack three years on to the Cellulosic Ethanol Production Tax Credit. The bipartisan bill has 27 co-sponsors. "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.

VEETC, commonly known as the blenders credit, provides 45 cents per gallon to oil and gasoline refiners for each gallon of ethanol blended. SPTC is a 10-cent-per-gallon tax credit, offered on the first 15 million gallons of ethanol produced by ethanol companies producing no more than 60 MMgy. CEPTC offers producers of cellulosic ethanol 56 cents per gallon on top of VEETC. The 54-cent a gallon tariff is on ethanol imported from countries other than Caribbean Basin Initiative countries.

Before the House legislation was announced, several separate studies came out, detailing lost jobs and other consequences if ethanol tax incentives aren't extended. The first of those studies was published at the University of Missouri in a yearly report of the Food and Agricultural Policy Research Institute, which said without VEETC, U.S. fuel ethanol and biodiesel production would drop 10 percent, ethanol imports would increase and corn prices would drop about 15 cents in the next nine years.

A report written by John M. Urbanchuk of Entrix Inc. suggested even more serious consequences. The study predicted a 38 percent decrease in ethanol production if VEETC and other ethanol incentives were allowed to lapse at the end of the year. The Renewable Fuels Association, which commissioned the study, said that would be the equivalent of closing two out of every five ethanol plants operating now. The study also pointed to the loss of more than 112,000 jobs and a reduction of household income by $4.2 billion.

A third study focused on what would happen if the tariff were not extended. According to a 10-year projection performed by the University of Missouri's Community Policy Analysis Center, 161,384 jobs would be lost, many of them permanently, by the third year. In addition, if the tariff were allowed to lapse, economic activity would decline by $9.2 billion in the first year, reaching $21.2 billion by 2021. The six states with the largest declines in economic activity would be Iowa, Illinois, Nebraska, Minnesota, Indiana and South Dakota. In addition, steep declines in the value of corn, wheat, barley and sorghum were predicted.

Another study conducted by IHS Global Insight reported that as much as 2 billion gallons of Brazilian ethanol would be imported yearly if the tariff were not extended. That ethanol would, for the most part, replace domestically produced ethanol, not oil.

In addition to efforts to extend VEETC and other incentives to U.S. ethanol, nearly 40 industry groups sent a letter to Congress, urging that advanced biofuel producers be granted a 30 percent investment tax credit. It was needed, the March 3 letter said, to help producers overcome financial barriers and move ahead on developing commercial-scale cellulosic ethanol plants. Private investors, the letter pointed out, are often wary of taking on technology risks, and loan guarantees from the DOE and USDA have yet to "emerge as a material factor" in supporting commercialization of cellulosic ethanol. Among the companies and groups signing the letter were the Renewable Fuels Association, BlueFire Ethanol, Coskata, Enerkem, Verenium, Range Fuels and Iogen.