Corn Commentary

Government Earns 400% ROI on Ethanol Blender’s Credit

Recently, a nation starved for domestic energy supplies and sources, has managed to lose its way in the deep dark forest of the unknown that is the speculative science of indirect land use change. In typical American fashion – or at least this seems to be the new norm – we have missed the point, evaded the crux of the issue and been distracted by ne’re-do-wells with questionable motives.

So in the name of refocusing the energy debate, I offer up the bold statement that ethanol fuel is a slam dunk when it comes to offering a real solution. First, it is here today, not on a drawing board or in a lab and it helps us achieve many of our critical goals such as providing jobs, making us less dependent on foreign oil from often hostile sources, and it pollutes less than gasoline during its manufacture and use. And as a bonus, with biofuels like ethanol we also get a product that is renewable. Anything that directs our focus away from these fundamental truths should be looked at with a skeptical eye.

There appears to be some evidence that rational thinking is not dead and more and more people are beginning to understand the fallacies and foibles of the concept of indirect land use. Historical trends indicate that increased U.S. ethanol demand has not been a significant driver of land use change. Increased crop productivity (growing more on the same amount of land) has primarily provided the growth in production necessary to meet heightened demand. But if history has shown us one thing it is that critics of ethanol will not go gently into that good night.

The next issue can already be seen on the horizon and it can be seen clearly because it is not a “new” criticism. It is called the Volumetric Ethanol Excise Tax Credit (VEETC). This is the incentive put in place to encourage gasoline marketers to blend 10% ethanol in a gallon of gasoline. It is the carrot that got the entrenched oil industry to rethink their century old product mix and make it better.

Yes, you heard me right; the tax incentive goes to gasoline blenders, not the ethanol industry. Despite this, rest assured, the anti-ethanol cronies will scream ethanol subsidy when discussion about renewing VEETC begin in earnest. Regardless, VEETC is working and the facts speak for themselves. According to Bill McInturf, a Director at CFO Systems LLC in Omaha, NE the return on investment from the ethanol blender’s credit is 400%.

The Government’s 2008 $4.7 billion investment in the ethanol industry returned almost $20.0 billion in increased tax revenue and reduced farm program expenditures, leading Bill to say “This has to be one of the most financially successful government investments ever.”

“The current generation corn-based ethanol is likely not the entire solution to the energy problem,” McInturf concedes, “However, a growing vigorous ethanol industry has been created that already provides a significant contribution to the United States budget and economy by providing jobs and displacing oil imports.”

Revenue (economic benefits) resulting from VEETC includes:

   
     
  GDP and higher household income $ 11.90 billion
  Source: Contribution of the Ethanol Industry to the Economy of the United States  
     
  State and Local tax revenue paid on increased  
  GDP, higher household income and increased property taxes $ 9.00 billion
  Source: Contribution of the Ethanol Industry to the Economy of the United States  
     
  Reduction in Loan Deficiency Payments $ 3.4   billion
  Source: Economic Contribution of the Partial Exemption  
  for Ethanol From the Federal Excise Tax on Motor Fuel