US biofuel subsidies likely to be eliminated by deficit panel

12 September 2011 22:25  [Source: ICIS news]

WASHINGTON (ICIS)--US subsidies, tax credits and protective tariffs for ethanol, biodiesel and other federally funded alternative energy programmes soon may be eliminated by the new congressional deficit reduction committee, sources said on Monday.

That panel – the Joint Select Committee on Deficit Reduction – was established as part of the debt-ceiling increase approved by Congress in August. 

Its 12 bipartisan members are supposed to identify some $1,500bn (€1,095bn) in federal spending cuts in order to trim the government’s annual budget deficits, and to least begin work on reducing the nation’s $14,000bn debt load. 

The committee's spending cut recommendations are to be completed and presented to the full Senate and House by late November in an attempt to have them approved by the end of 2011.

The Methanol Institute (MI) said that in the first organisational meeting of the special panel – popularly known as the deficit committee or the super committee – ethanol subsidies were one of the few specific federal expenditures that were discussed.

“We have ethanol credits that are bad economic, bad agricultural and bad tax policy,” said Senator Patrick Toomey (Republican-Pennsylvania), who is one of six senators on the committee.

The institute noted that Toomey also was critical of federal tax policies that “forces Americans to pay more for inefficient sources of electricity”, apparently a reference to tax credits for renewable energy, such as wind and solar power projects.

“The focus on energy is putting many in the biofuel production sector on edge,” the institute said in a memo to its members, “as it does not bode well for subsidies for ethanol, biodiesel and other subsidised alternative fuels.”

US corn ethanol producers benefit from a 45 cent/gal federal subsidy. Biodiesel gets a $1/gal tax credit.

When Congress allowed the biodiesel credit to expire temporarily in 2010, US biodiesel production virtually ceased and many plants were shuttered.

Both the ethanol and the renewed biodiesel subsidies are scheduled to expire at the end of this year, and with the deficit committee on the prowl for $1,500bn in spending cuts, any chance of either biofuel subsidy being extended is seen as non-existent.

“The ethanol industry is fully anticipating that the tax incentive and tariff will expire at the end of the year,” said Matt Hartwig, spokesman for the Renewable Fuels Association (RFA).

US-produced ethanol also benefits from a 54 cent/gal tariff on imports of bio-ethanol.

Hartwig suggested that if the deficit committee wanted to find real savings, tax policies that benefit oil and gas production should be cut as well. 

However, the Obama administration has been trying for two years to kill tax credits for oil and gas production, a policy goal that went nowhere on Capitol Hill, even when President Barack Obama’s fellow Democrats controlled both houses of Congress.

Elimination of the biofuel subsidies appears all the more likely now that Obama wants the special deficit committee to find an additional $500bn to pay for his newly announced jobs stimulus package.

($1 = €0.73)

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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