Ethanol industry has mixed feelings on VEETC reform compromise

By Holly Jessen | July 07, 2011

Though it’s not exactly one for the win column, ethanol industry supporters are pleased with portions of a compromise that salvages certain ethanol-related tax credits. Organizations such as Growth Energy, the National Corn Growers Association, the American Coalition for Ethanol and the Renewable Fuels Association uniformly praised Sens. John Thune, R-S.D., and Amy Klobuchar, D-Minn., for their tireless work on reaching a compromise with Sen. Dianne Feinstein, D-Calif.

The proposal, which the Senators hope will be soon considered by the full Senate, would ax the Volumetric Ethanol Excise Tax Credit and the tariff July 31. On the other hand, it would extend, for three years, the tax credits for cellulosic ethanol and alternative fueling infrastructure and, for one year, the small producer tax credit. Thune and Klobuchar pointed out in their press release that eliminating VEETC while continuing to fund blender pumps is consistent with recent votes in the Senate.

“There are many positive components of this compromise that are important to the ethanol industry and rural America,” said NCGA President Bart Schott. “The final compromise reflects both the importance of the ethanol industry to achieve energy independence and the need for fiscal responsibility.”

Sen. Chuck Grassley, a long-time ethanol supporter, had this to say: “All things considered, it’s good news that an agreement was reached that salvages some of the effort to reduce America’s dependence on foreign oil,” he said. “I wish it would have included a more robust investment in alternative fuel infrastructure and cellulosic ethanol. Overall, the fact that this happened in a vacuum, rather than in an even-handed debate over all energy tax incentives, will always be a raw deal, especially for taxpayers and renewable fuel producers.”

Bob Dinneen, president and CEO of the RFA, called the bipartisan effort “the kind of sensible policy making American voters desperately want from their elected leaders.” Dropping all tax credits for ethanol “cold turkey” would jeopardize the future of the industry. “This is not the perfect compromise,” he said, “but it does demonstrate the willingness of American ethanol producers and advocates to do their part to address budget concerns while not sacrificing the progress and evolution of the industry.”

Brian Jennings, executive vice president of ACE, characterized it as “trying to make the best of a bad situation,” and pledged to support efforts to enact the proposal into law. “Despite its shortcomings, this compromise represents the art of the possible given the temperament of Congress, and buys us time to tackle unfinished business by building a new and broader coalition,” he said.

Growth Energy highlighted the fact that funding for blender pumps was included, which will help remove marketplace barriers and offer consumers choice at the pump. The proposal calls for extending the Alternative Fueling Infrastructure Tax Credit for three years, to expire at the end of 2014. “Certainly we have a lot of work to do to get out there and encourage people to install those pumps in that time frame,” said Growth Energy CEO Tom Buis.

Likewise, Jennings called the three-year extension a “modest but important down-payment” for fuel choice for U.S. drivers. “We’ll work with marketers to take full advantage of the improved incentives to convert to blender pumps,” he said.

The Advanced Ethanol Council joined RFA, ACE and Growth Energy in expressing concern over the fact that the gallons eligible for the cellulosic tax credit are capped. The proposal calls for caps at 50 million gallons in 2013, 100 million gallons in 2014 and 155 million gallons in 2015. It’s considered good news that tax credits for cellulosic ethanol were included, the groups said, but all called for changes in how the compromise was worded. “We are concerned that capping cellulosic ethanol development sends the wrong signal,” Dinneen said, “and we will continue to work with the Congress and the Obama Administration to address this anomaly in as this process continues.”  

Brooke Coleman, executive director of the Advanced Ethanol Council, expressed appreciation to Thune, Klobuchar and Feinstein and said the compromise had “enough of the right ingredients” to move forward with debate. “At the same time, there is a fundamental problem with how the advanced biofuels piece is crafted that will need to be addressed to be meaningful to the industry,” he said. “While we appreciate the ambition to lengthen the duration of the tax credits, the last minute switch from a yearly credit to a gallon-based, capped credit adds artificial and unnecessary layers of uncertainty and risk for the financing community.”

Buis also called the caps a bad idea that wasn’t ready for prime time. “I’m sure that’s beneficial to the oil industry but it’s not beneficial to the cellulosic ethanol industry and we oppose it,” he said, pledging to work with legislators to get that changed.

The NCGA, on the other hand, focused on the fact that lawmakers previously rejected any reform to subsidies and tax credits for the oil industry. “We call on Congress to level the playing field when it comes to energy policy,” Schott said. “Unlike the oil and gas industries, ethanol has been proactively working to reform tax policy affecting the industry and secure a safety net while reducing the overall cost to the federal government.” 

Jennings also called for the repeal of oil tax subsidies. “Regardless of how some will try to characterize eliminating VEETC, doing so will raise gas taxes on ethanol-blended fuel,” he said. “Moreover, it is an outrage that some elected officials continue to protect billions in subsidies for the oil industry, including a very recent vote against cutting $4 billion in Big Oil tax subsidies.”

Comments from UNICA, the Brazilian Sugarcane Industry Association, came from the other side of the coin, of course. Leticia Phillips, UNICA’s representative in North America, called VEETC a costly and unnecessary subsidy and applauded the idea of ending the tariff, something it has been asking for a while now. “Brazil ended trade-distorting subsidies for ethanol more than a decade ago and eliminated its ethanol tariff early last year,” she said. “We are pleased that this agreement would have the United States do the same. As the world's top producers of ethanol, the U.S. and Brazil should lead by example in creating a free market for clean, renewable energy.”