Ethanol tax-credit extension misdirected?

Dan Sanders Jr. is glad Congress recently passed a one-year extension of a 45-cent-per-gallon ethanol tax credit.

The tax credit originally included in legislation passed in 2004 was set to expire on Dec. 31.

But Sanders is quick to note the blenders’ tax credit won’t directly benefit him or Front Range Energy, the Windsor ethanol production facility he runs with his father, Dan Sr.

“I think it’s overall good for the consumer to stabilize fuel prices,” he said. “The one-year extension will give Congress time to evaluate the incentives for all fuels, including oil. “One of the big misconceptions about the tax credit is it’s a big subsidy for the ethanol industry,” he added. “It’s for the (ethanol) blender, not the (ethanol) producer.”

And that’s the irony with the blenders’ tax credit, which mostly goes to big oil companies that have the refineries where ethanol is mixed with gasoline and sent out to fueling stations across the nation.

The oil companies, which have mostly resisted the idea of competing with a corn-based fuel, are the direct beneficiaries of the tax credit, which helps them offset the cost of making ethanol, something they’re required to do by federal law. The goal is to reduce the amount of money the United States spends to import foreign oil.

The oil and meat industries were vocal opponents of an extension of the blenders’ tax credit and ultimately succeeded in helping kill a proposed five-year extension.

“For yet another year, 6 billion U.S. taxpayer dollars will be diverted from hardworking families to the pocketbooks of the ethanol industry for production that is mandated by the federal government, despite the fact that the American people are crying out for fiscal responsibility,´ said J. Patrick Boyle, American Meat Institute president in response to the Congressional vote.

But Stephanie Dryer, a spokeswoman for Growth Energy, a lobbying group for ethanol producers, said the tax credit extension is a short-term fix while Congress debates a comprehensive energy policy in 2011.

“We’re happy with the one-year extension because it provides us with the opportunity to have a conversation with the Congress and the administration about how we move forward,” Dryer said.

Without the tax credit in place, progress toward establishing a viable ethanol industry in the U.S. would likely be eroded as investors turn away from putting their money behind it.

But Dryer said the current system of tax credit support for ethanol has to change because it basically just lines the pockets of the oil industry.

“We see the present system as really ineffective,” she said. “We see it as giving money to our competition.”

Fueling Freedom

Dryer said Growth Energy backs what it calls “The Fueling Freedom Plan,” which would redirect a portion of ethanol tax credits for investment in ethanol infrastructure, including the installation of 200,000 blender pumps nationwide and federal loan guarantees for ethanol pipelines.

The plan also calls for all automobiles sold in the United States to be flex-fuel vehicles, which Growth Energy estimates would add about $120 to the price of each new vehicle.

“It’s an investment in infrastructure to level the playing field and give consumers a choice at the pump,” she said.

Dryer noted that there are only about 2,300 fuel stations nationwide that have blender pumps, which offer various mixes of gasoline and ethanol, and E-85 available to the consumer out of more than 170,000 nationwide.

“We’re significantly at a disadvantage with oil,” she said. “We’d rather see that (tax credit) go as an incentive for retailers to put in blender pumps. We want to give consumers a choice by leveling the playing field with oil, and ultimately the ethanol industry will be able to stand on its own.”

Last year, the U.S. Environmental Protection Agency approved a request by the ethanol industry to increase the amount of ethanol now blended into gasoline from 10 percent to 15 percent. And long-term goals call for the nation’s fuel producers to make 36 billion gallons of biofuels by 2022, up from the current level of 12 billion gallons annually.

But at the moment, the country can only consume so much ethanol because of its limited availability to motorists. Sanders echoes Dryer’s statement that the answer lies in being able to directly market ethanol to the consumer, who would then be more likely to buy a flex-fuel vehicle.

“Right now the oil companies have 100 percent control over the infrastructure,” he said. “We’d like to sell directly to the convenience store. If we’re going to incentivize anything, let’s incentivize for the consumer.”

Sanders said continuing to invest in ethanol is crucial to weaning the nation from importing oil from often-hostile countries.

“We’re now sending almost $1 billion a day overseas for oil,” he said. “Something’s gotta change.”

Steve Porter covers agribusiness and natural resources for the Northern Colorado Business Report. He can be reached at sporter@ncbr.com or 970-232-4147.

on Facebook on LinkedIn