Tax credits continue to dominate ethanol policy discussions

By Kris Bevill | December 13, 2011

The ethanol industry has accepted and even welcomed the elimination of the 45-cent per gallon Volumetric Ethanol Excise Tax Credit at the end of this year, but industry members will not be as willing to give up cellulosic ethanol-related tax credits without a fight.

As the cellulosic ethanol industry begins to actively come into commercial-scale production, current tax incentives must remain in place to support those facilities through the initial few years of production, according to the Advanced Ethanol Council. Of particular concern to AEC are two programs currently set to expire next year - the $1.01 per gallon Cellulosic Biofuels Producer Tax Credit (PTC) and a Special Depreciation Allowance for Cellulosic Biomass Ethanol Plant Property, which allows accelerated depreciation to be applied to cellulosic plants using enzymatic processes in the year that that plants come into operation. In a letter sent to leaders of the House Ways and Means Committee and Senate Finance Committee on Dec. 12, AEC Executive Director Brooke Coleman said the programs are necessary to ensure stability in the marketplace and prevent unnecessary job losses. He urged Congress to approve a five-year extension for both programs.

“The advanced and cellulosic biofuels industry is now in the process of building new plants, innovating existing production facilities with emerging technologies, and introducing new product streams that will allow the renewable fuels sector to become more profitable, diversified and efficient,” Coleman said in the letter. “Several billion dollars have been invested in advanced biofuels development with the expectation that Congress will stay the course with regard to its commitment to the industry. A tax increase on advanced biofuels at this time would curtain investment and undercut an industry just starting to close deals and break ground on first commercial plants.”

Timing is everything and as Coleman pointed out, while these programs are not scheduled to come up to the chopping block until the end of 2012, just the threat of their elimination can be enough to scare off investors and halt project development. “The mere prospect of the expiration of the PTC and Special Depreciation Allowance for cellulosic biofuels in 2012 will start to affect projects that take 18 months to build, and could drive our industry into a series of ‘fits and starts’ that has dampened investment in other domestic clean energy sectors for decades,” he wrote.

Meanwhile, ethanol opposers Reps. Jeff Flake, R-Calif., and Joseph Crowley, D-N.Y., held a briefing with fellow members of the House on Dec. 12 to re-visit the importance of ending VEETC and urge Congress not to bow to potential last minute proposals to extend or create new ethanol subsidies. There is little to no doubt that VEETC will expire as planned on Dec. 31, but in a letter submitted to Speaker of the House John Boehner and Minority Leader Nancy Pelosi, 73 representatives expressed concern that Congress will somehow allow the renewable fuel standard to be revised in order to qualify corn-based ethanol as an advanced biofuel before the Congressional session ends this month. “We urge you to oppose efforts to create new or expand existing subsidies that benefit the ethanol industry in the waning days of this session,” the representatives said in the letter. “Taxpayers deserve to have the future of federal ethanol policy fully vetted under regular order, an opportunity that is unlikely in the last days of the session.”