BY SCOTT WALTMAN swaltman@aberdeennews.com

July 31, 2011, 3:20 a.m.
 The end of an ethanol federal tax credit might have been devastating years ago, but other factors could offset the change for the industry, some advocates and officials said.

  A 45-cent-per-gallon tax credit that encourages the production of ethanol, extended for a year last year, is scheduled to expire on Jan. 1.

 If the credit would have been eliminated, for example, 15 years ago, it would have been a death blow to the ethanol industry, said Brian Jennings, executive vice president for the Sioux Falls-based American Coalition for Ethanol.

 Today, that's not the case.

 The exact effect on ethanol and corn producers of eliminating the subsidy is hard to tell.

 Most ethanol in the United States is blended at 10 percent. That means it's 10 percent corn-based ethanol and 90 percent gasoline. The tax credit is per gallon of ethanol used in the 10-percent blend, not per gallon of the finished product.

 So, in theory, the effect on gallon of 10-percent blend pumped into a pickup at a local gas station is 4.5 cents.

 But, Jennings said, it would be an oversimplification to assume that the price of 10-percent ethanol will automatically increase 4.5 percent if the credit disappears.

 The effect likely will be somewhat less, he said. Many others, though, are hesitant to guess about what will happen to ethanol prices if the credit goes away. Oil and corn prices are both volatile, making it hard to know what prices will do.

 

Policy

 Trey Fliehs grows corn and soybeans just southwest of Groton and sells corn to the nearby POET ethanol plant. An ardent ethanol supporter, he said there is a policy to help the industry offset the potential loss of the blender credit — the nation's renewable fuels standard.

 The renewable fuels standard is a portion of federal energy policy that dictates the increased production of renewable fuels such as ethanol. This year, the total required is 12.6 billion gallons; next year it's 13.2 billion gallons.

 According to the Renewable Fuels Association, 13.2 billion gallons of ethanol were produced in the United States last year. The group's estimate for this year is 13.5 billion gallons.

 

Debt ceiling

   U.S. Sen. John Thune, R-S.D., said it's realistic to assume that the blender credit will end. When and if it does, he said, the effect won't be drastic because the renewable fuel standard mandates a base level of production.

 Thune helped craft the compromise now in peril because of the debt ceiling. The tax credit was a compromise with the ethanol industry that would've ended the tax credit this month but provided more money for blender pumps. The savings for the remainder of the year would have been about $2 billion. Of that, two-thirds — $1.3 billion — would have been used for debt relief. The remainder would have gone to pay for more blender pumps that dispense ethanol blends of as much as 85 percent and to encourage cellulosic ethanol production. Cellulosic ethanol is made from wood, grasses and plant stalks instead of corn.

 While Senate negotiators agreed to the compromise, it was never voted on. Now, Thune said, the aim is to attach it to a piece of tax legislation. But that could be tough because the debt reduction plans Congress is now debating do not include tax changes needed to grant the new biofuels benefits in the compromise, he said.

 He said that, introduced on its own, the compromise doesn't stand a good chance of getting through the Senate or House.