US ethanol sector hails final House vote on subsidy

17 December 2010 18:36  [Source: ICIS news]

WASHINGTON (ICIS)--US bio-ethanol producers on Friday hailed final congressional passage of a major tax relief bill and its continuing ethanol subsidies, but the Brazilian ethanol industry vowed it would challenge the subsidy before the World Trade Organization.

With a midnight vote in the US House of Representatives, Congress gave final approval on Friday to a massive $858bn (€652bn) tax relief measure that also provides tax benefits to multiple business interests.

President Barack Obama was expected to sign the bill into law later on Friday.

The bill included a one-year extension of the 45 cents/gal federal subsidy for production and consumption of bio-ethanol, which in the US is almost wholly based on corn.

The measure also provides a one-year extension of the 54 cents/gal tariff on imported bio-ethanol, a provision that chiefly serves to keep Brazil’s sugarcane-based ethanol out of the US market, shielding domestic corn-ethanol producers from that competition.

House approval of the tax package and ethanol subsidies was applauded by the Renewable Fuels Association (RFA), the principal US bio-ethanol trade group.

“This will allow America’s ethanol industry to grow and evolve,” said RFA president Bob Dinneen.

The US corn-ethanol industry has suffered under financial strains and a number of bankruptcies, and there are many in Congress who would like to see the ethanol subsidy and related tariff substantially reduced or even eliminated.

But Dinneen and others argued that taxpayer support for the struggling domestic bio-ethanol industry was essential to keep the sector alive until the hoped-for development of commercial-scale cellulosic ethanol production could be realised.

“Extending these important incentives creates the necessary space for meaningful discussion of energy tax policy reform to occur,” Dinneen added.

However, the domestic bio-ethanol industry may face new challenges in 2011 when the Republican controlled House of Representatives convenes. 

The November election brought more fiscal hawks and anti-ethanol representatives to the House, and the one-year extension of the corn-ethanol subsidy may face an even broader threat in the new year.

In addition, the Brazilian Sugarcane Industry Association (UNICA) said that it would seek a formal Brazilian government challenge to the US corn-ethanol subsidy and protective tariff before the World Trade Organization (WTO).

UNICA president Marcos Jank said he was confident that one way or another, the US ethanol subsidy and tariff soon would come to an end.

“We know that the days of ethanol subsidies and trade protection are near the end, either because they will expire at the end of 2011 or as a result of litigation at the WTO,” Jank said.

He said that UNICA has tried for years to work with stakeholders in the US to change the nation’s restrictive ethanol trade policies but to no avail.

“It is clear that the United States is not committed to open and fair trade in clean energy, particularly ethanol,” he said.

Jank said that UNICA was asking the Brazil government to file a formal complaint against the US ethanol subsidy and tariff with the WTO.

“We have exhausted all options to resolve our differences through informal dialogue,” Jank said.  “It is time for the WTO to resolve this matter.”

The bill also contains a biodiesel tax credit.

($1 = €0.76)

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By: Joe Kamalick
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