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U.S. ethanol still needs tax incentives

Posted: April 5, 2010 at 12:06 PM CST

There’s been a flurry of studies coming across the EPM news desk in the last few weeks. Several studies focused on what would happen if the blender’s credit were allowed to lapse at the end of the year, as is currently scheduled, and the continued need for the tariff on imported ethanol. One study clears the biofuel name in the food shortage of 2007-2008, pointing fingers instead to drought and oil prices.

Those studies are good sources of information for everyone from legislators to biofuels supporters as well as the average citizen. Cutting the ethanol tax incentive, VEETC, would be bad news for the industry, meaning idled plants and lost jobs, primarily in rural America. Specifically, an Entrix Inc. report predicted 112,000 lost jobs and a reduction in household income by $4.2 billion. Another study done by the Community Policy Analysis Center predicted that, if the tariff on imported ethanol isn’t extended, 161,384 jobs would be lost by the third year.

Reporters like me gobble that kind of information up. Statistics, percentages, comparisons to previous years—it all makes for good copy. But more than good copy, it makes good sense.

Critics say a mandate isn’t needed—that the Renewable Fuels Standard is enough. However, as has been pointed out before, RFS2 only mandates a certain amount of ethanol is blended with gasoline, it doesn’t mandate that ethanol is produced here, by workers at U.S. ethanol plants. The U.S. ethanol industry needs VEETC and the tariff, working together, to keep production and jobs on home soil.

The ethanol industry only has to look to the biodiesel industry to confirm that. Since Jan. 1, when the biodiesel tax credit lapsed, demand for biodiesel dropped, meaning many biodiesel plants have cut back or stopped production altogether. The latest news came from Renewable Energy Group Inc., the largest U.S. biodiesel company, which idled two of its biodiesel plants and laid off 22 workers in late March.

Perhaps, without the tariff, Brazilian ethanol can be imported more cheaply than U.S. ethanol. Maybe it can be argued that sugarcane ethanol is more environmentally friendly. But that’s a short term view. How will the U.S. ethanol industry ever hold steady and grow—first generation and second generation cellulosic ethanol—if blenders and distributers don’t have incentives to support homegrown ethanol?

Now is simply not the time to knock the legs out from under the industry. There’s too much potential for growth. There are too many jobs hanging in the balance.

The good news is, legislation introduced in the House of Representatives calls for an extension of tax incentives, including VEETC, for cellulosic ethanol and for small ethanol producers, as well as the tariff. But, as Sue Retka Schill pointed out in her blog last week, that’s only part of the battle. There are still many things that have to fall into place before that bill actually becomes legislation.

In the meantime, the industry needs to keep speaking out about the need for tax incentives. I hate to admit it on such a beautiful spring day, but December 31, 2010, will come faster than we think.

-Holly Jessen