Corn Commentary

Ethanol Tax Incentives Appropriate and Necessary

So why does the ethanol industry think it needs to continue receiving tax incentives? There are the general answers such as to allow a relatively new industry to compete; to give a domestic fuel source a leg up, to compete against the most highly subsidized industry in history…Big Oil.

Those are all kind of trite and simplistic. Bob Dinneen, CEO of the Renewable Fuels Association provides a much more in depth response to that question in a recent interview with Washington DC-based Energy and Environment television.

In the absence of the tax incentive discretionary blending evaporates. With more than 2 billion Renewable Identification Numbers (RINs) through the RFS program that are out on the marketplace, they would quickly be bought up by refiners. So there’s no question that in the absence of the tax incentive demand for ethanol will fall.”

“And if that happens, there’s no question that plants, some plants would shut down. Now, will it be as dramatic or as devastating as the failure of Congress to extend the biodiesel tax credit? No, because we do have a stronger underpinning of regulatory support. The RFS is there and there will be ethanol that will continue to be blended. But suddenly the RFS is going to be a cap, not a floor.”

So what is a RIN? It is really a tradable commodity. Every gallon of renewable fuel in the U.S. has a unique serial number assigned to it. This unique 38-digit serial number (a RIN) is what makes the program work and allows EPA to monitor progress and make certain that all parties are playing by the rules. It also allows marketers flexibility to sell the RFS prescribed amount of ethanol in the markets that make the most sense in terms of demand and logistics.

Why should we as consumers care? At a very fundamental level that I can relate to without being an expert if we lose the ethanol tax incentive (VEETC) we become more dependent on foreign oil.

 “All the growth opportunities for ethanol aren’t going to be there. So we are very committed to making sure the industry is able to continue to grow and evolve these marketplaces that are opening up. And that’s why extending the tax incentive needs to occur,” Dineen says. “Now, do you want to look at ways to reform it? Absolutely and we’re working with the administration, we’re working with our allies on Capitol Hill, we’re working with other stakeholders to try to determine how you can address the future of the tax policy in a responsible fashion, in a way that provides some confidence that the markets will continue to be there, that will allow the continued evolution of the industry into newer technologies, different feedstocks, all the rest.”

“That’s a healthy conversation to have. You can’t have that in the week or two that you’re going to have in a lame duck session. So they can extend this tax incentive with, you know, a stroke of the pen, a little bit of Whiteout, just change the date. That’s what they need to do this year and let’s have a robust discussion about future biofuels tax policy and make sure we’re thinking about it in terms of what’s the best policy to promote cellulosic ethanol? How do we commercialize other advanced biofuels? How do we make sure that E85 and other fuel uses for ethanol as a replacement fuel are there? And that’s just going to be a much broader conversation.”

Hopefully, some day soon such incentives won’t be part of the public dialogue. If a realistic attempt is made to eliminate the millions of dollars in petroleum subsidies and level the playing field, other energy players will follow.