US energy chief hints at ethanol subsidy cut

29 January 2008 20:26  [Source: ICIS news]

WASHINGTON (ICIS news)--US Energy Secretary Samuel Bodman indicated on Tuesday that the Bush administration may seek to reduce the federal subsidy and protective tariff for domestic ethanol beginning next year.

Speaking at a biofuels conference, Bodman said that when the White House budget proposal for fiscal year 2009 is issued next week, “it will start to deal with that question” of bio-ethanol subsidies and tariffs.

The US domestic ethanol industry benefits from a long-standing federal subsidy of 51 cents/gal (€0.09/litre) in the form of a tax credit for refiners who use corn-based ethanol in their transportation fuel blends.

The bio-ethanol industry also is protected by a 54 cent/gal federal tariff on most imports of ethanol from other countries, chiefly from Brazil, the second-largest ethanol producer after the US.

Asked about the ethanol subsidies and tariff, Bodman said that the coming 2009 budget will deal with the issue. 

“I guess I would say that I think that there are advantages to having had the kind of both subsidies and tariffs that have helped protect this industry,” he said, referring to bio-ethanol production in the US.

“I believe that, as best I can tell, this industry is pretty close to being able to stand on its own, but I would rather not go further than that right now,” he said.

Late last year Congress passed and President George Bush signed an energy bill that includes a massive new mandate for US ethanol production, calling for output of 36bn gal/year of biofuels by 2022. That would represent a five-fold increase over current US corn-based ethanol production of some 6bn gal/year.

With enactment of that massive new federal stimulus for biofuels production, some critics have charged that federal subsidies for and tariffs to protect domestic ethanol production are a luxury that an energy-starved US can ill afford to continue.

However, the ethanol subsidy and tariff have strong support among both Democrat and Republican members of Congress from farm states, and any effort to cut federal support for domestic ethanol in the midst of the US election year would be very controversial.

($1.00 = €0.68)

By: Joe Kamalick
+1 713 525 2653

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