July 8, 2011 Ethanol Credits May Go Away
It appears that the federal tax credit for ethanol blenders and the tariff on imported ethanol will end on July 31 Senator Dianne Feinstein (D, Calif.) announced that she had reached an agreement with Senators Klobuchar (D, Minn.) and Thune (R, SD) to
end these two facets of the federal biofuels policy.
After being extended for one year last December, they were scheduled to expire at the end of 2011 had Congress not taken this action. All of the reports that CME editors could find cite $1.3 billion in savings that would be applied to the federal deficit and $668 million that will be devoted to infrastructure issues such as pipelines and blender pumps. It is not clear where the other $4 billion of the roughly $5.4 billion ($0.45/gallon times roughly 12 billion gallons) that the blenders’ tax credit has cost U.S. taxpayers the past two years will go.
Under the agreement:
- The 45 cent-per-gallon ethanol blender credit (VEETC) would be repealed on
July 31, saving $2 billion through the remainder of 2011.
- The 54 cent-per-gallon tariff on ethanol imports would expire on July 31.
- The tax credit for cellulosic biofuel production, currently set to expire at
the end of 2012, would be extended for three years, with annual caps on gallons,
and would be expanded to include promising fuels from algae to help the non-corn
advanced biofuels industry to emerge and develop.
- Reduced tax credits for alternative fueling infrastructure, including
electricity charging stations and natural gas fueling stations, would be
extended through 2014. The small-producer tax credit would expire at the end of
2012, with a reduction in the per-gallon credit.
Reports also suggested that the tariff would be a boon to Brazilian ethanol producers. It may be so over the long run but in the short run we do not expect a flood of Brazilian ethanol simply because sugar prices are so high. Brazil’s sugar-based ethanol industry is widely acknowledged as having the lowest cost structure in the world — under normal conditions in the sugar market.