US extension of ethanol tax credit, tariff in doubt

WASHINGTON (ICIS news)--A bill introduced in the US House to extend ethanol tax credits and continue a high tariff on foreign sources of the biofuel will face a tough battle in Congress, a top aide to one of the measure’s sponsors said on Thursday.

The bill, HR-4940, would extend the 45 cents/gal tax credit for domestic ethanol and the 54 cents/gal foreign ethanol tariff for five years. Both the tax credit and the tariff are to expire at the end of this year.

The US corn ethanol industry has warned that failure to extend the tax credits and tariff would deliver a significant blow to the domestic biofuels industry.

Bob Dinneen, president of the Renewable Fuels Association (RFA), warned that if the tax credit and tariff are allowed to expire at year end, nearly 40% of US ethanol production facilities would be forced to shut down and some 112,000 jobs would be lost.

But Steven Tomaszewski, spokesman for Congressman John Shimkus (Republican-Illinois), a co-sponsor of the bill, said the measure faces a tough battle in Congress amid growing opposition to corn-based ethanol.

Corn-based ethanol has come under broad criticism from environmental, refinery and automotive industry officials on grounds it does not offer an environmentally better fuel solution than conventional gasolines and does not warrant the substantial federal subsidy and tariff protection.

“It will be a tough battle,” Tomaszewski said of the extension bill, which is co-sponsored by North Dakota Democrat Congressman Earl Pomeroy and 28 other House members.

“You can never presume that anything will pass Congress and get signed into law,” he said.

Brenden Timpe, spokesman for Pomeroy, said the Congressman is hopeful that Congress will approve the tax credit extension and tariff renewal this year. Shimkus, Pomeroy and the other 28 House co-sponsors represent US midwestern states where corn is a major crop and corn-based ethanol production is concentrated.

While renewable fuels have long enjoyed favour in Congress, that support has waned in recent years amid controversy over the real environmental impact - or lack thereof - in biofuels.

Tomaszewski noted that Congress allowed a $1/gallon tax credit for biodiesel fuels to expire at the end of last year, suggesting that renewal of the corn-ethanol tax credit and tariff is far from being a sure thing. The US House and Senate have approved separate measures to renew the biodiesel credit, but the two bills have yet to be reconciled and approved by Congress as a whole.

In addition to growing opposition to corn ethanol in particular, Tomaszewski said the crowded Congressional calendar also represented a potential roadblock to renewal of the ethanol tax credit and tariff.

“A lot depends on how many other pieces of legislation the majority wants to move through Congress in what remains of this year,” Tomaszewksi said, citing plans by the Democrat leadership in Congress to work on major legislation such as climate change, immigration, financial reform and final pieces of the health insurance reform law.

“If all of those are going to be pursued, other items that are also very important, such as the ethanol tax credit, could get swallowed by the big fish,” he said.

If the 45 cents/gal tax credit were to lapse, it is expected that its absence would have little impact on US use of ethanol, because federal law mandates consumption of nearly 13bn gallons of bio-ethanol this year, increasing to 36bn gal/year by 2022.

However, if the 54 cents/gal tariff on foreign ethanol were to lapse, cheaper sugarcane-based ethanol from Brazil likely would flood the US market for mandated biofuels, forcing many among the more costly US corn-ethanol producers to shut down.

The extension bill, titled the Renewable Fuels Reinvestment Act, also would extend tax credits for cellulosic ethanol that otherwise will expire at the end of 2012.

The RFA warned that if the corn ethanol subsidy were to expire, that loss also would discourage large investments that are needed to continue research and development of non-food cellulosic ethanol and bring them to commercial production volumes.

Of the 36bn gal/year of biofuels mandated for 2022, 21bn gallons would have to be cellulosic and other advanced biofuels, according to the 2007 Energy Independence and Security Act (EISA).

source: icis