Ethanol Tax Credit More Likely to Expire

by Brian McGraw on August 9, 2011

in Blog

Post image for Ethanol Tax Credit More Likely to Expire

The ethanol compromise did not make it into any debt ceiling negotiations and its future is now looking bleaker than ever before. The Congressional ‘super-committee’ established by the debt ceiling negotiations will have to decide by November 23rd some manner to reduce the deficit by $1.5 trillion or face potentially unpopular automatic spending cuts to defense and discretionary spending (though USA Today writes that these “threats” have failed in the past). None of the rumored super-committee members seem to be from regions that would require their support of the ethanol industry

The ‘ethanol compromise’ had legs because it funneled money into the domestic ethanol industry while still maintaining a facade of deficit reduction. It would have collected $2 billion in revenue from the ending of the domestic tax credit as of July 21 and used a small amount less than that to spend on items near and dear to the ethanol industry (mainly ongoing support for cellulosic ethanol and money for the installation of blender pumps at fueling stations), hence their support.

The deficit reduction from the ethanol tax credit is no longer possible because the ethanol tax credit is again set to expire at the end of the year (as it was extended for one year at the end of 2010). This means that any potential deficit reduction is slowly being eroded as the tax credit continues on towards the end of the year, and renewal of support for the industry will add to the deficit rather than reduce it, making it much more difficult for conservative politicians to support it (though, obviously, they have been willing to forget their supposed free-market ideology when it suits them).

So it seems likely that the tax credit and tariff will expire at the end of 2011. It is possible (though it is harder to get subsidies back once they’ve been gone) that future support for the industry will get stuck into a larger energy bill, especially support for ‘next generation’ biofuels which remains popular among those who have given up on corn based ethanol. The Renewable Fuels Association has high hopes:

Bob Dinneen, president and CEO of the Renewable Fuels Association said that because the debt deal includes a call for a future budget framework, the opportunity to discuss comprehensive energy tax policy still exists. This could include infrastructure support, tax incentives for second-generation ethanol technologies and feedstocks and the repeal of petroleum subsidies. “With the debt ceiling crisis looking as though it has been averted for now, we hope Congress and the administration are now prepared to address the nation’s worsening energy crisis, as oil and gasoline prices continue to rise and the nation’s investment in homegrown renewable fuels languishes,” he stated.

The much bigger problem with ethanol is still the renewable fuel standard. This fight will manifest itself in future years as virtually every related industry outside of those who produce ethanol revolt against higher blends of ethanol entering the fuel supply (this assumes that ethanol does not become cost competitive with petroleum, if it does, the government would do best to get out of the way).

Otis P. Driftwood August 9, 2011 at 8:27 pm

I am mostly ignorant about all of the financial and economic end of all of this. And I am nobody’s genius when it comes to the supposed benefits of ethanol. But I have been able to come to a few of my own conclusions. One – ethanol increased the price of filling my tank. Two – since these corn growers are being subsidized they are VERY much in favor of ethanol. Three – (and this is what I just got from my wife) the price of fresh corn at the super market has skyrocketed just in the past year. And now they want to increase the percentage of ethanol from 10% to 15% of the volume of gas at the pump. And after reading a lot of stuff about ethanol, I STILL don’t know the benefit of putting it in my gas tank. Does it increase my mileage? If I knew conclusively that it increased my mileage enough to offset the increase in price I might have a more positive attitude about it. I would appreciate someone far more knowledgeable than me to help me out on this. Thank You.

Comments on this entry are closed.

Previous post:

Next post: