With high corn prices and the potential for actual supply shortages, there is growing attention on and restlessness with corn-ethanol incentive programs in Washington, or at least there’s a scramble for new options. While the Senate voted down Sen. Tom Coburn’s (R-Okla.) proposed bill to end the Volumetric Ethanol Excise Tax Credit this week, Sens. John Thune (R-S.D.) and Amy Klobuchar (D-Minn.) introduced legislation to convert the current 45-cent-per-gallon VEETC to a variable credit based on oil prices.
Currently, VEETC amounts to a $5 billion to $6 billion annual subsidy for corn ethanol production. This year’s extremely tight corn supplies have been weighing on livestock and poultry producers for some time and are now starting to impact ethanol plants as there’s more talk of some slowing or idling production, particularly in the Eastern Corn Belt, where corn plantings were delayed and some acres won’t get planted. With the cool, wet spring and what’s sure to be fewer corn acres than USDA’s projection of 92 million, next year’s corn supply may not be much better.
VEETC is set to expire on Jan. 1, 2012, but the Thune-Klobuchar bill establishes a timeline to modify the VEETC program, beginning on July 1 and moving it to a variable rate based on oil prices, with a built in expiration by the end of 2014. It would also extend the 10-cent-per-gallon “small producer ethanol credit” and the $1.01 per gallon cellulosic biofuels tax credit through 2014.
Known as the “Ethanol Reform and Deficit Reduction Act,” the bill would increase tax incentives for biofuels infrastructure, specifically it would move the tax incentives to vendors who install pumps that mix gasoline with ethanol. It would extend the current E-85 infrastructure tax credit into 2016.
Thirteen additional senators from both parties have signed on to the new reform bill, they include Sens. Chuck Grassley (R-Iowa), Mike Johanns (R-Neb.), Tom Harkin (D-Iowa), Richard Lugar (R-Ind.), John Hoeven (R-N.D.), Tim Johnson (D-S.D.), Jerry Moran(R-Kan.), Ben Nelson (D-Neb.), Al Franken (D-Minn.), Richard Durbin (D-Ill.), Mark Kirk (R-Ill.), Dan Coats (R-Ind.) and Claire McCaskill (D-Mo.)
Ending the VEETC in July versus in January will reduce its contribution to the federal deficit by $1 billion this year, according to Klobuchar. “Our bipartisan legislation would provide businesses a clear glide-path to move forward and keep the biofuels industry competitive while reducing our debt,” she said in a statement.
The “commonsense approach” taken in the legislation toward biofuels infrastructure expansion and deficit reduction will benefit consumers, Thune said in a statement.
Major players in the corn and ethanol industries support the legislation, including the National Corn Growers Association and the Renewable Fuels Association. “The Ethanol Reform and Deficit Reduction Act comes at a time when we are proactively trying to reform the ethanol industry, unlike the oil and gas industry,” says Bart Schott, NCGA president and grower from Kulm, N.D.
The fact that this new bill offers some deficit reduction measures and has bi-partisan support lined up in its co-sponsors, this version appears to have more chance of getting approved than previous bills.