Inside the Beltway: "Begin Preparing Now for 2009"
by Eric Washburn
Congress is winding down. The presidential election is winding up. And the ethanol industry just overcame a major effort to consolidate the gains made with the passage of the 2007 Renewable Fuels Standard. Now is the time for the industry to look forward and prepare for the inevitable battles coming next year.
The two major challenges that we can expect to face in 2009 will involve the extension of the biofuels tax credits and breaking down the E10 blend wall. The Volumetric Ethanol Excise Tax Credit (VEETC), now at 45 cents per gallon, is due to expire at the end of 2010. This means that when Congress returns in January 2009, a debate will begin about whether to extend the tax incentives, and if so, in what form.
This will be a tough battle for two reasons. First, extending the tax credits will cost much more money now than in the past. With the ethanol industry expected to produce well over 13 billion gallons per year by 2011, extending them at the current 45 cent per gallon level could cost over $6 billion per year initially. Second, groups like the Grocery Manufacturers Association (GMA), which has undertaken a major public relations campaign against ethanol in the last year, are expected to fight any extension of the tax incentives.
Moreover, there is likely to be pressure on Congress by GMA and others to let the import tariff on ethanol expire. To prepare for this fight, the ethanol industry not only needs to start now determining its bottom line goals for the tax credit extension battle, we also will need to recruit political allies that can help generate support for the extension outside the Midwest. Some environmental organizations, energy security advocates, consumer advocates, and others could be critical to succeeding in this task.
Breaking through the E10 blend wall will present similar difficulties. Since the U.S. uses about 140 billion gallons per year of transportation fuel, blending all that gasoline with 10 percent ethanol means that that market will be roughly saturated with 14 billion gallons of ethanol or less. In the next year or two, we could easily face a situation where ethanol supplies begin to overwhelm demand. The Department of Energy is undertaking the studies necessary for EPA to determine whether it can grant a waiver to use higher blends like E15 and E20. But this process could take another two years. In the meantime, we need to explore whether a waiver to use E15 could be granted now.