Ethanol May Not Need Its U.S. Tax Credit, GAO Finds

Congress should consider revising or ending the 45 cent-a-gallon tax credit for blending corn ethanol with gasoline, the Government Accountability Office said.

The credit “may no longer be needed to stimulate conventional corn ethanol production because the domestic industry has matured,” GAO said in an Aug. 25 report posted on the investigative agency’s Web site today. Ethanol production “is well understood, and its capacity is already near” a 15 billion gallon-a-year congressional requirement for conventional ethanol, the report found.

Energy legislation approved by Congress in 2007 required that 36 billion gallons of biofuels be used by 2022, up from 9 billion gallons last year, in an effort to reduce petroleum use. The legislation reduced the “volumetric ethanol excise tax credit” from 51 cents for 45 cents a gallon starting this year.

GAO estimated the tax credit supporting conventional corn ethanol production could cost the U.S. $6.75 billion in lost revenue by 2015, up from $4 billion last year.

The credit “does not stimulate additional ethanol consumption,” according to the report. GAO said options include keeping the credit, reducing or phasing it out, or modifying it to counteract crude oil price fluctuations.

The tax credit “isn’t up for renewal until next year, and we believe that discussion is best left for then,” Chris Thorne, director of public affairs for pro-ethanol group Growth Energy, said in an e-mail today. According to its Web site, Growth Energy’s board includes Jeff Broin, chief executive officer of Poet LLC, the largest U.S. producer of ethanol.

Board of Trade

Denatured ethanol for October delivery rose 4.5 cents, or 2.5 percent, to settle at $1.876 a gallon on the Chicago Board of Trade today. It was the 10th consecutive day of rising ethanol futures prices.

The GAO report also found that “increasing demand for corn for ethanol production has contributed to higher corn prices.”

The GAO recommends that Congress require the Environmental Protection Agency to assess all environmental effects of increased biofuels production in determining what fuels are eligible for the renewable standard.

The domestic biofuels industry is challenged by infrastructure limitations and a government-imposed “blend wall” that restricts to 10 percent the amount of ethanol that can be mixed with gasoline, the report concludes.

source: bloomberg