The future of the ethanol industry appears up in the air as two bills come before Congress at loggerheads with one another.
The first bill sets out to reform bioethanol tax policy. Put forward by a group of senators led by Senator Chuck Grassley, the bill is supported by the National Corn Growers Association, American Coalition for Ethanol, Growth Energy and the RFA. The bill, dubbed the Domestic Energy Promotion Act, would reduce blender’s credit for two years, after which the credit would be tied to oil price. Tax credits for installing ethanol fuelling infrastructure would be improved, as would accessibility to credits for small ethanol producers and, notably, advanced cellulosic biofuel producers, not previously covered by these benefits.
The group released this statement:
The group states that ethanol has already had economic benefits for US citizens by keeping gas prices $0.89 lower (research by Iowa State University) than they were predicted to be in 2010. This saved the average US family $800 last year and over the past ten years has saved consumers a total of $35 billion.
The second bill is more anti-ethanol and was put forward by Senators Tom Coburn and Dianne Feinstein to repeal subsidies for ethanol use: the tax credit system and also the import tariff in foreign ethanol.
They argue that the ethanol subsidy is bad economic policy and is to blame for increases in the cost of energy and food, and in these times of austerity the subsidy is irresponsible. Ethanol receives three forms of government support; government rewards for use, tariff protection and the mandated blend percentage. They claim that repealing the subsidy for ethanol will save taxpayers $6 billion a year. Nearly 40 organizations from across the political spectrum, including a number of refiners, have called for the removal of the subsidy. The main point of their argument is that this level of government intervention in the ethanol industry is unfair and unnecessary; if ethanol use is mandated by law why reward companies for complying with the law? Despite the bill having a decidedly anti-biofuel flavor, there is a point to be made here. The tax credits given for ethanol use don’t support the ethanol industry; it goes to its customers who are required by law to use ethanol. While this could be argued to benefit the industry indirectly by supporting its customers, the government might find this cash put to better use elsewhere.
Corinne Young, a leading consultant in US biobased chemicals policy had this to say about the bill:
The fact that a number of refiners who benefit from the subsidy are backing the bill is interesting, why would anyone support a bill that would mean they get less money? Removal of subsidies for biodiesel culled the number of companies last year; those that were scraping by with the subsidy dropped without it. Perhaps some of the refiners backing this bill are hoping to remove some of the competition? Removal of the subsidy could reshape the ethanol industry by removing more minor players for their market share to be taken up by financially stronger companies that can weather losing that income.
Coburn and Feinstein also claim that ethanol is bad for the environment and actually increases dependence on foreign oil by increasing the price of imported ethanol. The claim ethanol is bad for the environment is oversimplified; some methods of ethanol production save very little carbon and energy over the whole life cycle, while others are much greener and these are seen as the future of ethanol. However, the claim about increasing dependence on foreign oil is interesting. The limits placed on imported ethanol are there to make it easier for US ethanol manufacturers to compete, so that the US can have a growing ethanol industry of its own without being undercut by cheaper imported ethanol. However it could be argued with free trade of cheap Brazilian ethanol it might be possible to increase the volume of ethanol used in the US and therefore decrease the use of foreign oil, but this would simply make the US dependent on foreign ethanol rather than foreign oil in the long run.
Overall, the Grassley bill would be good for the biofuel industry and would probably result in a scenario where the majority of the existing ethanol industry and new technologies are supported, allowing the US to maintain its place as a world leader in the biobased economy. The Coburn/Feinstein bill on the other hand would reshape the industry. It would have a “pruning” effect which would result in a smaller number of more stable companies (if tax credit for refiners is removed) rather than larger numbers of smaller start-ups. In the long run, this might have its advantages; less players competing for market share, partnership opportunities and funding might (eventually) favor growth. However, the blow that the Coburn/Feinstein bill would deliver would impair innovation and slow movement towards the greener biofuel technologies. The bill would also put the industry on the back foot at a time when it should be pushing forward.
The first bill sets out to reform bioethanol tax policy. Put forward by a group of senators led by Senator Chuck Grassley, the bill is supported by the National Corn Growers Association, American Coalition for Ethanol, Growth Energy and the RFA. The bill, dubbed the Domestic Energy Promotion Act, would reduce blender’s credit for two years, after which the credit would be tied to oil price. Tax credits for installing ethanol fuelling infrastructure would be improved, as would accessibility to credits for small ethanol producers and, notably, advanced cellulosic biofuel producers, not previously covered by these benefits.
The group released this statement:
“This legislation rightfully recognizes budget constraints by reforming the ethanol tax credit and significantly reducing its cost. Additionally, this bill would improve current tax credits for the installation of blender pumps offering higher level ethanol blends and provide Americans more choice when they fill up. Critically, this legislation would also ensure progress made to commercialize advanced ethanol technologies utilizing new feedstocks such as grasses and municipal solid waste is accelerated.”
The group states that ethanol has already had economic benefits for US citizens by keeping gas prices $0.89 lower (research by Iowa State University) than they were predicted to be in 2010. This saved the average US family $800 last year and over the past ten years has saved consumers a total of $35 billion.
The second bill is more anti-ethanol and was put forward by Senators Tom Coburn and Dianne Feinstein to repeal subsidies for ethanol use: the tax credit system and also the import tariff in foreign ethanol.
They argue that the ethanol subsidy is bad economic policy and is to blame for increases in the cost of energy and food, and in these times of austerity the subsidy is irresponsible. Ethanol receives three forms of government support; government rewards for use, tariff protection and the mandated blend percentage. They claim that repealing the subsidy for ethanol will save taxpayers $6 billion a year. Nearly 40 organizations from across the political spectrum, including a number of refiners, have called for the removal of the subsidy. The main point of their argument is that this level of government intervention in the ethanol industry is unfair and unnecessary; if ethanol use is mandated by law why reward companies for complying with the law? Despite the bill having a decidedly anti-biofuel flavor, there is a point to be made here. The tax credits given for ethanol use don’t support the ethanol industry; it goes to its customers who are required by law to use ethanol. While this could be argued to benefit the industry indirectly by supporting its customers, the government might find this cash put to better use elsewhere.
Corinne Young, a leading consultant in US biobased chemicals policy had this to say about the bill:
“I oppose Coburn/Feinstein, which would hinder the US's ability to lead the bio-based economy, with ethanol as platform infrastructure that can continue to hasten the deployment of high value biochemicals as well. Particularly in the wake of the Senate Finance Committee hearing on better proposals to repeal some of Big Oil's subsidies for deficit reduction and wiser investment in clean tech, such as a bio chemical production tax credit (PTC). A PTC would drive over 200,000 new jobs over the next 5 to 10 years and would spur US global competitiveness in sustainable manufacturing for an innovative, low carbon economy.”
The fact that a number of refiners who benefit from the subsidy are backing the bill is interesting, why would anyone support a bill that would mean they get less money? Removal of subsidies for biodiesel culled the number of companies last year; those that were scraping by with the subsidy dropped without it. Perhaps some of the refiners backing this bill are hoping to remove some of the competition? Removal of the subsidy could reshape the ethanol industry by removing more minor players for their market share to be taken up by financially stronger companies that can weather losing that income.
Coburn and Feinstein also claim that ethanol is bad for the environment and actually increases dependence on foreign oil by increasing the price of imported ethanol. The claim ethanol is bad for the environment is oversimplified; some methods of ethanol production save very little carbon and energy over the whole life cycle, while others are much greener and these are seen as the future of ethanol. However, the claim about increasing dependence on foreign oil is interesting. The limits placed on imported ethanol are there to make it easier for US ethanol manufacturers to compete, so that the US can have a growing ethanol industry of its own without being undercut by cheaper imported ethanol. However it could be argued with free trade of cheap Brazilian ethanol it might be possible to increase the volume of ethanol used in the US and therefore decrease the use of foreign oil, but this would simply make the US dependent on foreign ethanol rather than foreign oil in the long run.
Overall, the Grassley bill would be good for the biofuel industry and would probably result in a scenario where the majority of the existing ethanol industry and new technologies are supported, allowing the US to maintain its place as a world leader in the biobased economy. The Coburn/Feinstein bill on the other hand would reshape the industry. It would have a “pruning” effect which would result in a smaller number of more stable companies (if tax credit for refiners is removed) rather than larger numbers of smaller start-ups. In the long run, this might have its advantages; less players competing for market share, partnership opportunities and funding might (eventually) favor growth. However, the blow that the Coburn/Feinstein bill would deliver would impair innovation and slow movement towards the greener biofuel technologies. The bill would also put the industry on the back foot at a time when it should be pushing forward.
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