20 August 2010 19:53 [Source: ICIS news]
In an advisory note to clients, investment bank FBR Capital Markets (FBR) warned that Congress, facing popular pressure to reduce deficits and the debt, might well abandon the once-powerful
“Given an extraordinarily tight budget environment, it is becoming increasingly likely that Congress will reduce the [tax] credit or allow it to expire altogether,” FBR said in its analysis.
The federal government’s 41 cents/gal tax credit for refiners for blending
In appraising the precarious position of bio-ethanol on Capitol Hill, FBR noted that “The previously powerful biofuels industry has thus far been unable to extend the [$1/gal] biodiesel tax credit that expired in 2009”.
And, “as the 2010 expiration of the ethanol tax credit approaches, the ethanol industry has failed to settle on a strategy in the face of criticism from government and private studies,” FBR said.
The Renewable Fuels Association (RFA) had no immediate official response to the study.
In addition to those problems, FBR analysts noted that “ethanol states are less well represented on congressional tax-writing committees as they have been” in previous years when the ethanol credit was up for reconsideration.
At the key US House tax-writing panel, the Ways and Means Committee, Chairman Sander Levin (Democrat-Michigan) in July proposed cutting the ethanol tax credit from 41 cents/gal to 36 cents/gal and extending the credit for only one year.
But even that reduced level for the ethanol subsidy was in trouble, FBR noted.
The reduced ethanol tax credit proposal “was part of a larger energy tax package costing more than $20bn [€15.6bn]”, the bank analysts said, adding: “Thus far, Democrats have been reluctant to take up such a large tax bill in an election year.”
After the election, in which Republicans are forecast to make potentially significant gains, the current Congress likely will reconvene in December for what is known as a lame-duck session, so named because many sitting members would have been defeated in the polls and will be out of office on 1 January.
Such a lame-duck session of Congress is even less likely to pass unpopular tax measures, so the existing 41 cents/gal tax credit for corn ethanol and the 54 cents/gal tariff on ethanol imports could well be allowed to lapse at year end, FBR said.
($1 = €0.78)
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