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Inside the Beltway: Time to Talk Tax Credits
by Eric Washburn

The weather is getting cooler, the leaves are beginning to turn, and it’s time once again to talk biofuels tax credits. The fact that expiration of the Volumetric Ethanol Excise Tax Credit (VEETC) is just over a year away is leading many in the industry to begin to have conversations about extending it.

In past years, the annual cost in foregone revenue to the Treasury was, by DC standards, manageable. Consequently, the combination of farm-state members like Senators Baucus and Grassley and the importance of the Iowa caucuses was able to push it across the finish line. As a result, the ethanol credit has existed in some form for about thirty years.

As the industry has suffered through a few years with many plants operating in the red, the importance of extending the tax credit is reinforced. Without it, the industry could continue to feel the slow erosion of profitability, jeopardizing our ability to meet the RFS production targets. Nevertheless, our collective task in extending the credit is likely to be far more challenging than at any time in the past.

With the industry’s unprecedented growth has come the growth of a movement resisting further expansion of the production and use of biofuels. Our “friends” at the Grocery Manufacturers Association, the cranky left fringe of the environmental movement, and others have joined in common cause to attack any progressive biofuels policies. Moreover, as a result of our recent growth, extending the basic VEETC will cost somewhere between five and ten billion dollars per year over the next decade. So while it is ACE policy to support extension of the tax credit as-is, that will be a daunting challenge, particularly against a backdrop of record federal deficits.

Therefore, we need the vision to recognize the previous political formula may no longer be sufficient, and we may need to seek new allies and strategies to succeed this time. In thinking of prospective new allies, three groups come immediately to mind: moderate environmentalists who have concerns about biofuels, but also believe that a well-designed biofuels policy will produce real benefits in lower greenhouse gas emissions; sportsman organizations that have concerns about the potential loss of conservation acres, but also have worked closely with agriculture groups and understand the need for a vibrant farm economy; and renewable electricity producers who, like ourselves, understand the need for tax credits to deploy renewable energy technology.

Our friends – Senators Grassley and Baucus, and President Obama – will undoubtedly help, but we also need to do what we can to make their job easier. It is clear that an extension of some kind is crucial if we are going to keep our plants operating in the black.

 
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The American Coalition for Ethanol publishes Ethanol Today magazine each month to cover the biofuels industryís hot topics, including cellulosic ethanol, E85, corn ethanol, food versus fuel, ethanolís carbon footprint, E10, E15, and mid-range ethanol blends.
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