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Wednesday, March 09, 2011

Ethanol boosted by soaring oil prices; bipartisan Senate duo moves to repeal industry's tax credit

Rising oil prices have boosted the ethanol industry, but it may lose its federal tax credit in the battle over the federal budget deficit.

"Since December the rise in the price of crude oil has driven the wholesale price of regular gasoline to $3 per gallon," Dan Piller of the Des Moines Register reports. "That made room for the price of ethanol to climb from $2 per gallon in December to $2.59 per gallon Monday." The spike is particularly helpful for the industry, squeezed by the doubling of corn prices in the last half of 2010.

"The lower price of ethanol gives oil companies extra incentive, beyond the federal renewable-fuels mandates, to purchase ethanol to blend with unleaded gasoline," Piller writes. A decline in gas consumption early last year hurt ethanol demand, but ethanol margins improved as oil prices began to rise. Then came soaring corn prices. The industry could face a crisis by fall if U.S. farmers don't produce a bumper corn crop, Todd Becker, chief executive of Green Plains Energy, told Piller. "Most plants will get through the second quarter of this year all right, but a lot of plants are very nervous about the third quarter," he said. "We could see some plants shut down." (Read more)

A true sea change may be in the works for ethanol. A bipartisan Senate duo on Wednesday introduced legislation that would repeal the 45-cents-per-gallon credit that goes to refiners and gasoline blenders for each gallon of ethanol blended into gasoline, Ben Geman of The Hill reports. The bill is sponsored by Oklahoma Republican Sen. Tom Coburn and Maryland Democratic Sen. Ben Cardin. "The ethanol tax credit is bad economic policy, bad energy policy and bad environmental policy," Coburn said in a statement. "The $6 billion we waste every year on corporate welfare should instead stay in taxpayers’ pockets where it can be used to spur innovation, stimulate growth and create jobs." (Read more)

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