Doubt cast on ethanol incentive; top producer suggests switching aid to industry's infrastructure

The fight to extend federal tax breaks for ethanol could get tougher because of a Congressional Budget Office report and the leading producer's suggestion that tax breaks be dropped in favor of help in expanding the fuel's distribution network.

"As Midwestern lawmakers push to extend ethanol credits due to expire at the end of this year, Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-N.M.) indicated they may not be able to do so without a fight," due to the Congressional Budget Office's report critical of the cost of biofuel tax credits, Allison Winter of Environment & Energy Daily reports. "Bingaman said yesterday that a blenders' tax credit for ethanol should not be 'reflexively' extended."

CBO reported it costs taxpayers $1.78 to reduce gasoline consumption by one gallon using corn ethanol and $3 per gallon with cellulosic ethanol, and "Bingaman criticized the 45-cents-per-gallon blenders' credit for ethanol, known as the volumetric ethanol excise tax credit," Winter writes. Bingaman said before deciding to extend the credit, lawmakers should weigh the issue carefully, including its "very high cost to taxpayers," energy benefits, production mandates and market prices. In a statement he explained, "This report by the nonpartisan Congressional Budget Office provides further evidence that our nation's biofuels tax incentives might not be appropriately calibrated."

The Renewable Fuels Association said the report took ethanol incentives out of context. "It may seem penny-wise, but would be pound-foolish to dismiss the benefits of current biofuels in light of the havoc wrought by our dependence on fossil fuels," RFA President Bob Dinneen told Winter. "Analyzing American energy policy cannot occur in a vacuum."(Read more, subscription required)

The nation's leading ethanol maker, Poet, split with the RFA and allied groups and proposed phasing out the subsidies and replacing them with tax credits for installing blender pumps and building biofuel pipelines. Poet CEO Jeff Broin said, "With a blender pump in every neighborhood and a flex-fuel vehicle in every garage, ethanol can compete against oil without the tax incentive." Allison Winter of Environment & Energy News explains, "The plan calls for all automobiles sold in the United States to be flex-fuel vehicles that could accommodate fuel that is up to 85 percent ethanol. Most gasoline now has a 10 percent ethanol blend." Poet was joined by other producers in Growth Energy, a lobby that represents 30 percent of U.S. ethanol production. (Read more, subscription required)