Senate bill calls for VEETC extension, funding for biofuel pumps

By Holly Jessen | May 04, 2011

If a bill introduced May 4 in the U.S. Senate becomes law the Volumetric Ethanol Excise Tax Credit would be extended through 2013 at decreasing amounts, after which it would convert to a variable tax rate until 2016. The Domestic Energy Promotion Act of 2011 also includes provisions to provide funding for alternative fuel pumps and extend the tariff at decreasing amounts.

The American Coalition for Ethanol, Growth Energy, the National Corn Growers Association and the Renewable Fuels Association issued a joint statement praising the legislation. “This legislation rightfully recognizes budget constraints by reforming the ethanol tax credit and significantly reducing its cost,” they said. “Additionally, this bill would improve current tax credits for the installation of blender pumps offering higher level ethanol blends and provide Americans more choice when they fill up.”

The bill was introduced by Sens. Chuck Grassley, R-Iowa, Kent Conrad, D-N.D., Mike Johanns, R-Neb., Amy Klobuchar, D-Minn., Al Franken, D-Minn., Tom Harkin, D-Iowa, and Tim Johnson, D-SD. Grassley called it a “serious, responsible first step to reducing and redirecting” U.S. tax incentives for  renewable fuels. “Some of my colleagues have argued that it’s time to end the incentives for biofuels immediately and entirely.  Not only is this bad energy policy, poor tax policy, and dangerous to our national security, it’s also intellectually dishonest,” he said during a floor speech. “I believe a discussion concerning our nation’s energy and tax policy should be debated in a comprehensive manner.  Biofuels are not the only form of energy that receives incentives or supportive policies from the federal government.”

The bill reduces VEETC to 20 cents in 2012 and 15 cents in 2013, both at fixed rates. After that it would convert it to a variable tax incentive through 2016. The rate will vary based on the price of crude oil, with 30 cents for the blenders credit when crude oil is at $50 and below. As the price of crude oil increases, the tax incentive for biofuels decreases, ending at zero once oil reaches $90 a barrel. “When oil prices are high, a natural incentive should exist in the market to drive ethanol use,” Grassley said.

Beyond VEETC, it would extend the alternative fuel refueling property credit through 2016. This credit would be modified to allow it to apply to ethanol blends from E20 to E85 at 100 percent of the cost, as long as dual-use pumps are used partially for alternative fuels. On the cellulosic ethanol side the bill would extend the cellulosic producers’ tax credit and the special depreciation allowance for cellulosic biofuel plant property, also through 2016. Finally, the ethanol import tariff would be extended but reduced to 20 cents for 2012 and 15 cents for 2013 through 2016. "Our nation is spending more than $850 million every day on imported energy," Conrad said.  "Imagine what it would be like if we spent that money on energy from the Midwest instead of the Middle East.  We need to do more to boost domestic energy production, especially from alternative fuels such as ethanol."