Washington could determine ethanol's Ind. future

A decision by Congress on whether to extend or gradually phase out a tax credit to oil companies and refiners to blend ethanol with gasoline could make or break some of Indiana's 12 ethanol plants.

A study by a Delaware consulting firm says Indiana could lose thousands of jobs if the 45-cent-per-gallon tax credit is allowed to expire. Currently, the state's ethanol plants employ about 500 people statewide, but the consultant, Entrix, says the losses would also affect farmers, truckers and suppliers.

Indiana's $1.3 billion ethanol industry has the capacity to produce 938 million gallons, according to the Indiana State Department of Agriculture. Entrix and the Renewable Fuels Association estimate the credit's lapse could reduce U.S. ethanol production by one-third, or 4 billion gallons a year, the Indianapolis Business Journal reported.

A recent report from the Food and Agricultural Policy Research Institute at the University of Missouri disputes those numbers. The report projected that losing the credit and eliminating import tariffs could cut U.S. ethanol production by 1.4 billion gallons in 2011-2012 and 3.6 billion gallons in 2019-2020.

But the report acknowledges that letting both expire would reduce the incentive to produce ethanol, and it says corn prices could drop 15 cents a bushel if the tax credit expires.

About 20 percent of the corn currently produced in Indiana now goes toward ethanol production, said Mark Henderson, executive director of the Indiana Corn Marketing Council. Much of that ethanol is shipped to the East Coast to be blended with gasoline.

Proponents argue that ethanol reduces dependence on foreign oil, provides jobs and will become more viable as scientists find ways to distill it from ordinary grasses and plant matter at a lower cost.

But critics say it contains less energy than ordinary gasoline and isn't cost-effective for motorists unless ethanol is priced substantially cheaper per gallon than gasoline.

The pending expiration of the tax credit has set off alarm bells at the National Corn Growers Association, the American Farm Bureau Federation and the biofuels trade group Renewable Fuels Association. They want the credit extended by Congress for at least five more years.

The ethanol industry also is watching federal regulators. The Environmental Protection Agency last month approved allowing 15 percent ethanol in ordinary gasoline for vehicles made in 2007 and later.

Few retailers are willing to install pumps, tanks and hoses to dispense E15 for less than 20 percent of the vehicles on the road. So the industry is watching to see if the EPA approves ethanol for cars made as far back as 2001.

"The approval of E15 for cars 2007 and newer is dead on arrival," said Wally Tyner, a Purdue University agricultural economist. But he said approving it for older-model cars has a "greater chance of taking hold in some places."

Gasoline retailers appear leery. The National Association for Convenience and Petroleum Retailers recently warned retailers to exercise "extreme caution" when considering whether to sell E15. It said retailers could be liable if pumping equipment is not certified to dispense E15 or if motorists put E15 in a vehicle built before 2007 -- as well as for any damage to vehicles.

"Frankly, our store managers are not equipped to police what vehicle pulls up to an E15 pump," said Jim Gentry, director of fuel purchasing at Greenfield-based Gas America.

Gentry said Gas America will likely wait to see whether E15 becomes the norm in the marketplace.

source: chicagotribune