Where’s domestic demand?
The ethanol industry needs federal infrastructure spending for pipelines and flexfuel pumps that can handle E15 blends and higher, and it needs Detroit to crank out more flexfuel cars and trucks. Put simply, it needs expanded domestic markets. Domestic ethanol demand, set by the RFS, is pretty much full up unless blends above 10% become common. And because domestic demand is met, high U.S. ethanol exports are giving the industry a black eye. It’s expected competition from sugar-based ethanol from Brazil and other countries will also put pressure on the domestic industry.
The new challenge is getting the infrastructure package through Congress. Feinstein says she wants it tacked on to any debt ceiling increase/spending cut package that may be agreed to. That’s likely to happen only if debt negotiators agree to start whacking federal tax loopholes as revenue increasers so they don’t have to mess with individual and corporate tax rates. Meanwhile, Sen. Orrin Hatch (R-UT), ranking member of the tax-writing Senate Finance Committee, said he wants all tax rewrites as part of a comprehensive tax reform effort, not moved piecemeal on other unrelated legislation.
Further complicating this scenario is a package of other nonethanol biofuels which receive tax credits for blending, research, small entities, alternative fuel mixtures, etc. The biodiesel/renewable diesel industry, through legislation authored by Sen. Chuck Grassley (R-IA), is pushing to extend its $1/gallon blenders tax credit for three years, but change it from a program for oil companies to one which gives out a producers’ tax credit, a benefit to the actual biodiesel producer. Biodiesel made from animal fats and oilseeds argues it’s an industry still too young to be operating on its own without help from Uncle Sam.
The challenge for ethanol interests is to cast federal infrastructure investment, whether loan guarantees, tax credits or what-have-you, as exempt from the no-new-spending mantra being chanted on both sides of Capitol Hill.
When the dust settles this fall, corn-based ethanol will no longer qualify for any blenders’ tax credit and the protective import tariff will disappear. While the pain for the ethanol industry will be minimal since it didn’t collect those credits in the first place and the RFS remains, the key is how much money can the ethanol industry convince Congress is a good investment in increasing ethanol demand in U.S. markets.