US Congress extends ethanol subsidy and tariff

15 May 2008 21:47  [Source: ICIS news]

WASHINGTON (ICIS news)--The US Congress approved a $289bn (€188bn) farm bill on Thursday, including a two-year extension of the 54 cents/gal tariff on imported ethanol and continuation of a key tax credit for domestic ethanol production from corn.

 

President George Bush has threatened to veto the measure, saying the bill is too expensive and charging that Congress failed to make overdue changes in crop subsidies.

 

However, the farm bill, HR-2419, was approved by the Senate in today’s vote by a veto-proof margin of 81-15.  The bill was approved by the House yesterday with an equally strong 318-106 majority.

 

If Bush were to reject the bill, the Senate would need only 67 votes to override his veto and the House could approve the measure over the president’s objection with only 290 votes.

 

The bill continues a key tax credit for domestic bio-ethanol production and consumption, although the credit was reduced from the earlier 51 cents/gal to 45 cents/gal.  That amount is what US refiners and fuel blenders receive against their taxes when they blend corn-based ethanol into retail gasolines.

 

On its face the credit reduction to 45 cents/gal would appear to reduce the incentive for refiners to blend ethanol into their fuel products. However, refiners’ use of bio-ethanol is required by the energy bill Congress approved in December last year, which raises the corn ethanol consumption mandate this year to 9bn gal and eventually to 15bn/gal year by 2022.

 

Consequently, even though refiners will get less of a tax credit for every gallon of corn ethanol they use, they are required by the 2007 Energy Independence and Security Act (EISA) to use still more ethanol in their fuel mix.

 

The six cents saved in the farm bill from the ethanol tax credit is set aside elsewhere in the legislation to further research in cellulosic ethanol, which uses non-food biomass feedstocks such as grasses and wood chips. The 2007 energy bill provides that the country should be using 21bn gal/year of cellulosic and other advanced biofuels by 2022 in addition to the mandated 15bn gallons of corn ethanol, for a total of 36bn gallons.

 

The farm bill’s extension of the ethanol import tariff means that volumes of sugarcane-based ethanol directly from Brazil will remain priced out of the US fuels market. 

 

As investment bank Friedman, Billings & Ramsey (FBR) noted, by lowering the tax credit to 45 cents/gal while maintaining the tariff at 54 cents/gal, Congress has effectively raised the barrier to ethanol imports from 3 cents/gal to 9 cents/gal.

 

The new 36bn gal/year biofuels mandate, known in legislation as the renewable fuels standard (RFS), has come under some criticism in Congress recently due to corn ethanol’s apparent impact on increased prices for corn, other grains and derivative food products.

 

But the solid Senate and House votes for the farm bill indicate that there is still overwhelming support in Congress for corn-based ethanol despite recent criticism.

 

($1 = €.65)

 

To discuss issues facing the chemical industry go to ICIS connect

Bookmark Simon Robinson's Big Biofuels Blog for some independent thinking on biofuels

By: Joe Kamalick
+1 713 525 2653

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly