Tax credit gap would cut US ethanol profits 86% - consultant

16 June 2010 19:15  [Source: ICIS news]

ST. LOUIS, Missouri (ICIS news)--The US ethanol industry's profits would plunge 86% if Congress does not extend a tax credit that is due to expires at the end of this year, a consultant said on Wednesday.

Loss of the tax credit, which returns 45 cents/gal for ethanol blended in gasoline, would cause some 38% of US ethanol capacity to shut down and send production back to 2005 levels, said John Urbanchuk, technical director at environmental and natural resource management consulting firm Entrix.

The US produced 10.8bn gal/year of ethanol last year, and the figure would drop by 4bn gal if the tax credit disappeared, he said.

"Guys, that is going to hurt," he told the Fuel Ethanol Workshop in St. Louis, Missouri.

US ethanol makers are pushing for a five-year extension, claiming the incentive is needed to foster continued growth in the industry.

Legislation seeking an extension was introduced in April, but Congress has yet to look into the issue, said Julie Allen, a consultant with Kansas-based accounting firm Kennedy Coe, who also spoke at the event.

A potential end to the tax credit would make the 54 cent/gal tariff on imported ethanol illegal, and that would potentially open the way for Brazil, India and China to ship the product into the US, Urbanchuk said.

"That would have profound consequences," he said, predicting some US 112,000 jobs would be lost and another US industry would effectively be shipped overseas.

The Midwest, where most US ethanol plants are located, would feel most of the pain, he said.

Loss of the tax credit would also send a negative signal to investors and hurt the development of next-generation US ethanol production, Urbanchuk said.

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By: William Lemos
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