RFA head covers challenges ahead in state of industry address

By Susanne Retka Schill | February 21, 2011

U.S. DOE Secretary Steven Chu expressed his support for biofuels, and said corn ethanol is a good base for the development of a strong domestic biofuel industry in videotaped remarks given at the National Ethanol Conference being held Feb. 20-22 in Phoenix. “We have only just begun to realize the benefits of homegrown fuels,” Chu said as he outlined the work of his agency in developing advanced biofuels and supported other agencies, such as the USDA and U.S. EPA, in feedstock development and E15 testing.

Renewable Fuels Association President and CEO Bob Dinneen introduced the videotaped remarks from Chu at the end of his state of the industry address that opened the conference. “I believe in redemption,” Dinneen said, referring to the oft repeated dislike of corn ethanol by the secretary of energy. “Sec. Chu’s comments about our industry have been misconstrued,” he said.

The industry is facing seemingly insurmountable challenges and opposition, Dinneen said in his remarks to the 16th annual conference, but it is not a new situation. He quoted a member written by RFA’s first president Dave Hallberg in 1981:  “While always volatile, the environment affecting alternative energy technologies has been in an acute state of turmoil and uncertainty. … The administration has embarked on an economic revival program based on massive budget cuts, new tax laws, and market oriented policies that have either totally eliminated, or put in great doubt, existing federal government commercialization programs and tax incentives. Last, but not least, press treatment of the alcohol fuels industry has been generally shallow and uniformed, and the general public is receiving an increasingly negative view of its value and potential.”

Dinneen cited the economic contribution made by the ethanol industry to rural communities and the national economy, before stressing the contribution the industry makes to the nation’s energy security. With a $1.5 trillion budget deficit, and the proposals for cutting many programs before Congress, Dinneen said, “Few programs will be spared. Everything is on the table; or should be.”  A proposal to strip certain tax incentives from the petroleum industry failed recently, he added, although efforts to end ethanol subsidies still abound. The lessons learned in the effort to extend the ethanol tax credit for one year were unambiguous, he said.  “Our industry needs to work with Congress and the administration to reform the tax incentive moving forward.”

Dinneen called for a more comprehensive approach, looking at all energy tax policy in general, addressing the permanency of tax incentives for the mature and profitable energy industry compared to the “extender games” played with renewable energy technologies. He mentioned several reform proposals, saying that all need to be fairly considered including:

* A refundable producer tax incentive rather than market-based incentive,

*A proposal to limit the incentive only to gallons above the renewable fuels standard obligation, or make it available to only mid-level ethanol blends and E85,

*Phasing down the incentive while phasing in mandates for FFVs and blender pumps,

*A carbon-based performance credit favored by environmentalists.

*A variable tax incentive tied to the price of oil and/or crush margins to provide a consumer safety net, assuring ethanol demand if oil prices falls, but having a mechanism to reduce incentives if not needed.

“Frankly, each of these has both advantages and disadvantages. But we must allow a dispassionate debate, based on fact and market analysis, and guided by political reality. Ultimately, the arbiter will be Congress, and we will all have to live with the consequences.”

“I can assure everybody in this room that an expiration of the tax incentive is a very real possibility this year,” Dinneen warned, saying the mixed messages from the industry and agriculture are not helpful.  “While this outcome is possible, it is by no means predetermined. We need to unite.”