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Study: Loss of Ethanol Blender's Credit and Import Tariff Would Have Little Impact

posted on July 30, 2010


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The U.S. ethanol industry currently benefits from three pillars of government support:

- Renewable Fuel Standards mandating that 13 billion gallons of ethanol be blended into U.S. gasoline annually, and increasing to 36 billion gallons by 2022,

- A 54-cent per gallon tariff on imports of foreign ethanol scheduled to expire on December 31,

- and a 45-cent per gallon tax credit for blenders who add ethanol to gasoline which also expires at the end of the year.

Realizing the supports protect their industry from formidable foreign competition while providing incentives for petroleum blenders to use their homegrown, alternative fuel, ethanol proponents are lobbying aggressively for Congressional extensions.

But at least one researcher says the expiration of the import tariff and the blender's credit would have little effect on the ethanol industry.

For months, ethanol advocates have pleaded with Congress to renew a 54-cent per gallon import tariff protecting their industry, and to extend the 45-cent per gallon blender's credit which they believe will save thousands of U.S. jobs.

Wesley Clark, Co-chair, Growth Energy: "We've got to reauthorize the Blender's Tax Credit."

Bob Dinneen, President, Renewable Fuels Association: "You're going to see 112,000 people across the country, many in the Midwest, lose their jobs."

Several bipartisan attempts in the last few months to get both industry subsidies extended have failed. Despite their value to the multi-billion ethanol industry, there is a growing movement to ELIMINATE the tax credit and to allow the import tariff to expire.

An Iowa State University, funded by the Brazilian sugar industry, concludes if both industry supports are eliminated there would be NO cataclysmic loss of jobs or major decrease in ethanol production. Instead, the whitepaper shows there would only be a limited impact on the ethanol industry as a whole.

The study examined the impact on the U.S. ethanol industry, corn producers, taxpayers, fuel blenders, and fuel consumers if current policy is not extended. Consequences of different ethanol policies were examined for 2011, when the Renewable Fuels Standard increases to nearly 14 billion gallons. Researchers also studied the impacts in 2014, when production mandates increase to more than 18 billion gallons annually.

The author of the study, Bruce Babcock, is a professor of economics and director of ISU's Center for Agricultural and Rural Development.

Bruce Babcock, Iowa State University: "My analysis shows that if you dump the whole thing and move on, number one, shows we are serious about budget reduction, number two, you could use that money to expand demand for ethanol rather than subsidize its supply when we don't need those supply subsidies because we have the mandates. So my analysis says 'dump it all and let's move on."

Despite his call for elimination of government support, Babcock believes ethanol is an integral piece of the alternative energy puzzle.

Bruce Babcock, Iowa State University: "I think if we're serious about ethanol as an alternative fuel in this country then EPA needs to allow expanded use and higher blends in our gasoline supply. If EPA does that, then I think the U.S. ethanol industry, combining with the mandates that are in place, it's time for that industry to stand on its own."

Based on the premise the Environmental Protection Agency WILL increase the maximum amount of ethanol blended in most U.S. gasoline from the current allowance of a 10 percent blend to 15 percent, the study concludes...

-U.S. imports of Brazilian ethanol will rise to 740 million gallons...and account for about five percent of the total domestic market in 2014.

-The price of ethanol will drop by 12 cents in 2011 and by 34 cents in 2014.

-Only 300 jobs will be lost in 2014

-And taxpayers will save $6 billion annually.

Bruce Babcock, Iowa State University: "No domestic industry likes competition from imports. If you poll almost any domestic industry they'll say, 'We have an import tariff, we want to keep it.' But, I think, with regards to the tax credit, I think that the industry is starting to realize that those mandates are in place and they mean a growing market for U.S. ethanol for quite some time."

Despite Babcock's predictions, a study commissioned earlier this year by the Renewable Fuels Association, or RFA, an advocacy group representing the majority of U.S. ethanol producers, came to the exact opposite conclusion. It revealed elimination of these two industry supports would be an energy nightmare. According to RFA, without the blender's credit and import tariff...

- Blenders will look for cheaper ethanol, which will likely be imported.

-Without the money injected into the economy from the blender's credit there will be $6 billion less spent on grain, raw materials, and goods and services.

-and with fewer dollars being spent, ethanol plants will close resulting in the loss of 112,000 jobs.


Tags: agriculture biofuels Congress ethanol government industry jobs news renewable fuels taxes