Ethanol on its own after tax break expires

Jan 4, 2012

The U.S. fuel industry rang in the new year with a little less help from the government after the previously entrenched Volumetric Ethanol Excise Credit expired on Dec. 31, 2011.

The tax credit was partially responsible for buoying the growth of the corn ethanol industry over the last 30 years, but the 45-cent-per-gallon helping-hand is no more after Congress allowed the tax credit legislation to expire. The tax credit had cost about $6 billion annually.

The usual VEETC rallying cry from the ethanol industry has been silent for months. On Dec. 6, biofuel giants POET and Growth Energy formally expressed their disinterest in fighting for the tax credit. A month earlier, the same groups pressed the oil industry to reject government support for their business. After all, the ethanol industry said, it is the oil companies that blend their product with ethanol that the tax break helped most. Oil companies like Missouri’s MFA Oil use 10 percent ethanol in their unleaded gasoline as an additive under a 2007 state mandate.

"The industry is supportive of the VEETC going away,” said Tom Buis, CEO of Growth Energy, which lobbies for ethanol. “We can compete without it. It was a benefit in the early years in helping to build out the industry, but it’s no longer one of the biggest issues out there.”

Since the implementation of the tax credit times have changed in the ethanol industry. Ethanol plants are churning out the fuel across the country, more flex-fuel vehicles are on the road and there are increased opportunities for drivers to fill up on an array of ethanol blends like E85 or E30. Here’s another sign ethanol’s doing an OK job staying afloat: farmers in the heartland grow corn to sell to ethanol plants.

Buis said distribution and market access for ethanol will be key in the industry's future. That means more of an interest in things like blender pumps and getting more ethanol by volume in every vehicle on the road.

As it stands, oil companies are the ones who distribute most of the ethanol, so farmers who grow corn for ethanol probably won’t feel the effect of an expired tax credit. Patrick Westhoff, director of the University of Missouri’s Food and Agriculture Policy Research Institute, said it’s more likely the consumer who will see a difference.

“Without the 45-cents-per-gallon credit, there will be a combination of lower prices to ethanol producers and higher effective costs to those who blend ethanol with gasoline,” Westhoff explained in an email. “Some of which is likely to be passed along to final consumers.”

 USA Today says that increase in price might add up to about 4.5 cents per gallon as early as this week. Others, however, say consumers won't flinch as the year begins VEETC-free.