Blender Credit Loss Coming
(DTN) Losing the 45-cent-per-gallon Volumetric Ethanol Excise Tax Credit won't have a major impact on the ethanol industry but will likely lead to a small increase in fuel prices as well as a potential decline in what ethanol plants are willing to pay for grain.
In a conference call with reporters on Tuesday, Jeff Broin, founder and CEO of the South Dakota-based ethanol company Poet, said the end of the year would mark a "significant transition" for ethanol with the elimination of the VEETC, generally called the blenders' credit. The blenders' credit and the ethanol import tariff both are set to end Dec. 31.
In the short term, dropping the VEETC likely will translate into a 4-cent-per-gallon increase in the cost of gasoline to consumers, Broin said.
The ethanol industry had worked aggressively earlier this year to try replacing the blenders' credit with tax credits or funding for ethanol infrastructure projects, but those plans did not generate expected support in Congress. The ethanol industry's efforts stalled after the Senate voted last summer overwhelmingly to end the blenders' credit and import tariff immediately, though the House never passed that measure.
With the price of ethanol more limited without the tax credit, that also could translate into ethanol plants offering to pay lower prices for the grain they purchase. Broin said he couldn't say specifically how the end of the tax credit would affect corn prices.
"Certainly, at times, the tax credit has allowed ethanol plants to pay a higher price for grain," Broin said. "Today it would not have an impact. There could be pricing situations where it could have a small impact."
Nonetheless, in bidding farewell to the blenders' credit, Broin noted the tax credit had helped establish ethanol as the most successful renewable energy in the country's history. The tax credit allowed the industry to grow and become more efficient. Since Poet began nearly 20 years ago, Broin said better processing has cut energy use at the company's ethanol plants almost in half and reduced water use by 80% while increasing production yield of ethanol per bushel of corn nearly 20%, Broin said.
"Thanks to those efficiency gains and the steadily increasing price of oil, the industry has now matured to the point we can survive without the tax credit," Broin said.
Since 2008, ethanol has averaged 16 cents cheaper per gallon than gasoline without the tax credit being factored in, Broin said. He added that ethanol has become so competitive the U.S. ethanol industry is now exporting, including to Brazil.
Tom Buis, CEO of the lobbying group Growth Energy, said in an interview last week that market access is still the major problem the ethanol industry faces, "having access directly to the consumer and letting the consumer choose what blends they want based on price and performance."
Last year the EPA approved E15 for every vehicle produced in the last decade, which accounts for about 70% of all vehicles on the road. There are still regulatory and legal hurdles for getting E15 in the marketplace.
"Right now, we're capped and if you go to the big ports in the United States you probably see boatloads of ethanol that were produced here leaving the United States and boatloads of foreign oil coming in," Buis said. "They probably wave as they pass each other. It makes no sense that we are not using that domestic product here. E15 will help us with that."
With more than 13 billion gallons of production expected this year, ethanol is producing 10% of the nation's automobile fuel. Broin said dropping the tax credit would not hurt the ethanol industry's profitability overall, but could affect some particular ethanol producers more than others.
While willing to wave goodbye to the blenders' credit, Broin emphasized that policymakers cannot take further steps such as eliminating the Renewable Fuels Standard. Doing so would diminish market access to the fuel. "The road to the pump for ethanol still goes through our competitor, the oil industry," Broin said.
Defending the RFS is going to be a priority and reflects the typical American rift in energy policy going back more than four decades. Groups are championing legislation to overturn or stall the 36-billion-gallon RFS that was created in legislation just four years ago due to high prices.
"It's coming from the same people who have always disliked the RFS," Buis said. "Very frankly, I don't think they stand a chance of getting it, but it's something you have got to work hard to make sure that they don't."
Buis also is watching to see if Congress was going to push for tax-extenders package at the end of the year, but not for the blenders' credit, which has waning congressional support. Instead, the Infrastructure Alternative Fuel Tax Credit provides incentives for installation of flex-fuel and E85 pumps that can offset 30% of the equipment costs, up to $30,000. That tax credit also expires at the end of December.
"We're as uncertain as anyone on what Congress does or doesn't do on extenders by the end of the year," Buis said. "It's not just the ethanol industry that's in that boat but a lot of industries."
Added to that, the cellulosic industry still needs support, including the $1.01-per-gallon cellulosic tax credit now set to expire at the end of 2012. Cellulosic ethanol may have the potential to produce up to 80 billion gallons a year, Broin said, but as of now no cellulosic facility has achieved commercial-scale production. Other programs meant to help kick start cellulosic facilities, such as the Biomass Crop Assistance Program, have been cut dramatically by Congress.
Broin was asked by a reporter about whether the 54-cent-a-gallon import tariff should also be allowed to expire at the end of the year. Broin said he would like to see "parity" in tariffs between the U.S. and other countries. Because of the need for ethanol at the moment, Brazil has dropped its import tariff, but that tariff could be re-imposed in the future.
"There could be times in the future when we are at a disadvantage where there is a tariff on our product going into Brazil and not a tariff on their product coming into the U.S.," Broin said. "Parity is really critical."
Poet is one of Growth Energy's founders and major backers.
http://www.dtnprogressivefarmer.com
In a conference call with reporters on Tuesday, Jeff Broin, founder and CEO of the South Dakota-based ethanol company Poet, said the end of the year would mark a "significant transition" for ethanol with the elimination of the VEETC, generally called the blenders' credit. The blenders' credit and the ethanol import tariff both are set to end Dec. 31.
In the short term, dropping the VEETC likely will translate into a 4-cent-per-gallon increase in the cost of gasoline to consumers, Broin said.
The ethanol industry had worked aggressively earlier this year to try replacing the blenders' credit with tax credits or funding for ethanol infrastructure projects, but those plans did not generate expected support in Congress. The ethanol industry's efforts stalled after the Senate voted last summer overwhelmingly to end the blenders' credit and import tariff immediately, though the House never passed that measure.
With the price of ethanol more limited without the tax credit, that also could translate into ethanol plants offering to pay lower prices for the grain they purchase. Broin said he couldn't say specifically how the end of the tax credit would affect corn prices.
"Certainly, at times, the tax credit has allowed ethanol plants to pay a higher price for grain," Broin said. "Today it would not have an impact. There could be pricing situations where it could have a small impact."
Nonetheless, in bidding farewell to the blenders' credit, Broin noted the tax credit had helped establish ethanol as the most successful renewable energy in the country's history. The tax credit allowed the industry to grow and become more efficient. Since Poet began nearly 20 years ago, Broin said better processing has cut energy use at the company's ethanol plants almost in half and reduced water use by 80% while increasing production yield of ethanol per bushel of corn nearly 20%, Broin said.
"Thanks to those efficiency gains and the steadily increasing price of oil, the industry has now matured to the point we can survive without the tax credit," Broin said.
Since 2008, ethanol has averaged 16 cents cheaper per gallon than gasoline without the tax credit being factored in, Broin said. He added that ethanol has become so competitive the U.S. ethanol industry is now exporting, including to Brazil.
Tom Buis, CEO of the lobbying group Growth Energy, said in an interview last week that market access is still the major problem the ethanol industry faces, "having access directly to the consumer and letting the consumer choose what blends they want based on price and performance."
Last year the EPA approved E15 for every vehicle produced in the last decade, which accounts for about 70% of all vehicles on the road. There are still regulatory and legal hurdles for getting E15 in the marketplace.
"Right now, we're capped and if you go to the big ports in the United States you probably see boatloads of ethanol that were produced here leaving the United States and boatloads of foreign oil coming in," Buis said. "They probably wave as they pass each other. It makes no sense that we are not using that domestic product here. E15 will help us with that."
With more than 13 billion gallons of production expected this year, ethanol is producing 10% of the nation's automobile fuel. Broin said dropping the tax credit would not hurt the ethanol industry's profitability overall, but could affect some particular ethanol producers more than others.
While willing to wave goodbye to the blenders' credit, Broin emphasized that policymakers cannot take further steps such as eliminating the Renewable Fuels Standard. Doing so would diminish market access to the fuel. "The road to the pump for ethanol still goes through our competitor, the oil industry," Broin said.
Defending the RFS is going to be a priority and reflects the typical American rift in energy policy going back more than four decades. Groups are championing legislation to overturn or stall the 36-billion-gallon RFS that was created in legislation just four years ago due to high prices.
"It's coming from the same people who have always disliked the RFS," Buis said. "Very frankly, I don't think they stand a chance of getting it, but it's something you have got to work hard to make sure that they don't."
Buis also is watching to see if Congress was going to push for tax-extenders package at the end of the year, but not for the blenders' credit, which has waning congressional support. Instead, the Infrastructure Alternative Fuel Tax Credit provides incentives for installation of flex-fuel and E85 pumps that can offset 30% of the equipment costs, up to $30,000. That tax credit also expires at the end of December.
"We're as uncertain as anyone on what Congress does or doesn't do on extenders by the end of the year," Buis said. "It's not just the ethanol industry that's in that boat but a lot of industries."
Added to that, the cellulosic industry still needs support, including the $1.01-per-gallon cellulosic tax credit now set to expire at the end of 2012. Cellulosic ethanol may have the potential to produce up to 80 billion gallons a year, Broin said, but as of now no cellulosic facility has achieved commercial-scale production. Other programs meant to help kick start cellulosic facilities, such as the Biomass Crop Assistance Program, have been cut dramatically by Congress.
Broin was asked by a reporter about whether the 54-cent-a-gallon import tariff should also be allowed to expire at the end of the year. Broin said he would like to see "parity" in tariffs between the U.S. and other countries. Because of the need for ethanol at the moment, Brazil has dropped its import tariff, but that tariff could be re-imposed in the future.
"There could be times in the future when we are at a disadvantage where there is a tariff on our product going into Brazil and not a tariff on their product coming into the U.S.," Broin said. "Parity is really critical."
Poet is one of Growth Energy's founders and major backers.
http://www.dtnprogressivefarmer.com
Posted by Colvin & Co. at 12/8/2011 5:30 AM 
Categories: Renewable Energy
Tags: agriculture farmland corn ethanol exports Brazil Renewable Energy trade
Categories: Renewable Energy
Tags: agriculture farmland corn ethanol exports Brazil Renewable Energy trade
Comments