VEETC is Vital

Credit lowers effective price of ethanol
By Holly Jessen | November 15, 2010
While ethanol prices were lower than gasoline for much of the year, in October that changed. Higher corn prices and growing ethanol demand inverted the relationship, pushing ethanol prices higher than gas prices.

The effective price of ethanol is still lower than the price of gasoline, however, says Geoff Cooper, vice president of research and analysis for the Renewable Fuels Association. With the Volumetric Ethanol Excise Tax Credit, or as it's commonly known, the blenders credit, gasoline blenders and refiners who mix ethanol with their gasoline claim 45 cents a gallon. "When the value of the tax credit is passed through to the consumer, it translates to a 4.5 cent per gallon savings at the retail level for gasoline containing 10 percent ethanol (E10) compared to gasoline without ethanol," he says.

Chicago spot prices during the week of Oct. 17 show ethanol selling at 15 cents less than reformulated blendstock for oxygenated blending (RBOB), when VEETC is accounted for. Those numbers add up to a gallon of E10 being 1.5 cents cheaper at a retail store than unleaded gasoline with no ethanol blended into it. "In essence, VEETC is enhancing the ability of ethanol producers to manage sharply higher corn prices, while at the same time ensuring ethanol is priced competitively with gasoline and ultimately saving consumers money," Cooper says.