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The Ethanol Credit – Slip Sliding Away

The Ethanol Blenders’ tax credit, which has existed for decades, is in serious jeopardy of being repealed or at a minimum non-renewed.

The Ethanol Blenders’ tax credit or VEETC (Volumetric Ethanol Excise Tax Credit) provides blenders of ethanol with a $.45 per gallon tax credit for every gallon of motor fuel blended with ethanol.  The VEETC was originally intended to protect and incentivize a fledgling industry which held the hopes of a greener energy and a path to energy independence.  However, as our federal government continues to wrestle with a budget deficit that exceeds $13 trillion, a tax credit which roughly equates to $1.3 billion annually in potential revenues, is far too attractive to escape being targeted.

Despite its current expiration date of December 31, 2011, the Senate passed a bill in mid June to repeal the VEETC almost immediately (July 31, 2011).  The Senate passed the bill 73-27, with major bi-partisan support.  The House was not so quick to ring the death knell for VEETC.  Having met resistance to the idea of a VEETC repeal in the House, Senators Thune, Klobuchar and Feinstein tried to broker a “House acceptable-repeal” to be included in the Debt Ceiling Bill.  This new proposal contained $688 million of new incentives for the ethanol industry.  But instead of a blenders’ credit, which goes mainly to refiners, the new incentives would assist gasoline station dealers or distributors in upgrading their station equipment to handle EPA’s new E15 standard including the replacement of underground storage tanks. The new proposal also included extending the tax credits for cellulose ethanol (currently at $1.01 per gallon due to expire 2012) and eliminating the $.54 ethanol import tariff.

Because this new proposal was intended to be part of the Debt Ceiling Bill, it got shelved when all new revenue generation was taken off the table in the debate.

The VEETC will likely be a hot topic when Congress reconvenes in September.  Whether the VEETC gets eliminated or significantly reduced, it will not likely alter the demand for corn, the production of ethanol or the growth of this industry.  This is true because there are still various incentives in place to encourage and support the ethanol industry.  The EPA has increased the ethanol allowable in each gallon of motor fuel to 15% and the Renewable Fuel Standards Act still requires refiners to produce in excess of 12 billion gallons of ethanol product annually.  In addition, any decrease in the VEETC will likely be coupled with an increase to the AFVRPC (Alternative Fuel Vehicle Refueling Property Credit).

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