Ethanol debate heats up

So many things going on in the US ethanol market day after day, it’s driving me nuts! (I’m writing an ethanol article this week…)

First of all, the ethanol industry is in a tizzy over the ticking 45c./gal subsidy which is set to expire at the end of the year. Second, the Environmental Protection Agency (EPA) has been delaying its decision whether to lift the cap on the 10% ethanol blend (E10) in gasoline to 15% (E15).

The agency was originally expected to rule on the issue in December 2009, but postponed the decision, pressured by car manufacturers and the oil industry, which claim that more ethanol in gasoline could interfere with vehicle performance and void warranties.

The group released a statement yesterday calling on Congress to require thorough and objective scientific testing of ethanol in automobiles before allowing an increase in the amount of ethanol in gasoline.

The group includes the Environmental Working Group; Natural Resources Defense Council; The Hispanic Institute; Engine Manufacturers Association; International Snowmobile Manufacturers Association; Motorcycle Industry Council; National Marine Manufacturers Association; Outdoor Power Equipment Institute; American Frozen Food Institute; American Meat Institute; Grocery Manufacturers Association; Snack Food Association; American Petroleum Institute; National Association of Truck Stop Operators; and National Petrochemical & Refiners Association.

Here’s the ad they’ve been putting out recently with a tagline “Say NO to untested E15″.

The ad is illustrated by four color photos of people next to stalled vehicles and equipment – a snowmobile, a car, a riding lawnmower and a boat – under the headline: “Don’t let the ethanol industry leave you stranded.”

Fueling the debate (pun intended!) is a recent report from the Congressional Budget Office (CBO) stating that it will costs taxpayers $1.78 for each gallon of gasoline replaced by corn-based ethanol; $3.00 for cellulosic ethanol and $2.55 in using biodiesel to reduce equivalent amount of diesel fuel based on the 2009 tax policy.

The Renewable Fuel Association (RFA) refutes the CBO report’s accuracy stating that CBO did not include ethanol’s value as an additive to gasoline and that the report failed to include any comparison with other energy tax incentives, especially petroleum oil.

Ethanol producer Imperium Renewables put out a statement blasting the CBO report’s failure in reporting the overall benefits of ethanol.

“The CBO ignored data showing that every dollar of subsidy invested in biofuels returns more than two dollars in increased Gross Domestic Product and state and federal tax revenue. Most distressing is the admission by the authors that the report ignores several positive taxpayer benefits, including that ‘increased production of ethanol has probably resulted in some reduction in the price of gasoline, an increase in farm incomes and some impact on the quality of the nation’s air and water resources.”

Ethanol opponents also touted a recent report from the Center for Agricultural and Rural Development (CARD) projecting that allowing the blender credit and tariff to expire would not have adverse effect on U.S. ethanol production and demand. The report, by the way, is partially funded by UNICA, the Brazilian Sugarcane Industry Association.

Here are key highlights of the CARD report:

  • U.S. ethanol production would increase to some 14.5 billion gallons by 2014 without the tax credit and import tariff; U.S. imports of Brazilian ethanol would rise modestly to about 740 million gallons–less than 5 percent of the total U.S. ethanol market.

  • If the mandates are kept in place but the tax credits and trade protection are allowed to expire, no more than 300 jobs would be lost in the ethanol industry in 2014.
  • Ending the tax credit and tariff would reduce ethanol prices by 12 cents per gallon in 2011 and by 34 cents per gallon in 2014. Because most gas sold in the United States contains 10 percent ethanol–a limit the Environmental Protection Agency may increase to 15 percent this fall–lower ethanol prices lead to modest savings at the pump: a penny or two per gallon next year and 3 to 5 cents per gallon in 2014.
  • Opening the U.S. market to all producers would reduce price volatility by acting as a price shock absorber, meaning that in years when domestic ethanol production is low, imports would lower the consumer cost of meeting blending mandates.
  • The Renewable Fuel Standard (RFS) is the primary driver of ethanol demand. The tax credit prompts blenders to use about 900 million gallons of ethanol each year above mandated levels. This costs taxpayers some $6 billion annually (or almost $7 per gallon). Ending the subsidy would save that amount.

One Response to Ethanol debate heats up

  1. ethanol 22 July, 2010 at 2:15 pm #

    One thing that isn’t widely circulated about this study is that it assumes the EPA will approve the increase: “A key modeling assumption for 2014 is that EPA will increase the allowable ethanol-to-gasoline blend rate above E10 (10% ethanol blend).”

    So this study doesn’t say losing the tax credit won’t significantly hurt the industry. It says that losing the tax credit WHILE AT THE SAME TIME gaining access to a 50% increase in demand won’t significantly hurt the U.S. industry.

    Cutting the tax credit without giving the ethanol industry a chance to fight for more of the market would be a disaster.

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