Will Extending the Ethanol Tax Credit Slow Progress Toward Advanced Biofuels?

Industry Argues Jobs Will Be Lost Without It

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The federal tax credit for ethanol is among the most controversial energy- or environment-related policies in the country. The volume on all sides of the issue is increasing, with some shouting down ethanol’s claim to lower greenhouse gas emissions, others touting the tax credit’s job-creation capabilities and still others lamenting the diversion of farmland for fuel.

Now, Congress will soon weigh in. Several senators have introduced legislation that would extend the tax credit through 2015. If the bill fails, the credit will expire at the end of this year.

The extension bill, introduced by Sen. Charles Grassley (R-Iowa), would continue the credit of $0.45 per gallon of ethanol from large producers and $0.10 per gallon from smaller producers. It also would extend a larger tax credit for producers of cellulosic ethanol, at $1.01 per gallon; the current cellulosic credit expires at the end of 2012.

Environmentalist opponents of corn ethanol generally agree that there is a place for biofuel development, but they say the focus on corn ethanol does little to make a dent in greenhouse gas emissions, can cause food price spikes like those seen in 2008 and diverts federal resources away from developing other sustainable biofuels.

“Continuing to use federal subsidies and mandates to expand the corn ethanol industry is a mistake on many levels,” said Craig Cox, the senior vice president for agricultural and natural resources at the Environmental Working Group. “If the corn ethanol supporters want to extend the tax credit, they need to cut spending somewhere else. And that potentially puts at risk all kinds of alternatives that we think would be a much better public investment.”

Among those better investments in Cox’s view are improvements in vehicle fuel efficiency, as well as a stronger push toward advanced biofuels that don’t require food crops like corn.

The Environmental Working Group found that in 2007, ethanol received 76 percent of all the federal tax credits given out to renewable energy, including wind, solar and geothermal. This amounted to $3 billion to ethanol alone, and as Autumn Hanna of Taxpayers for Common Sense pointed out, these dollars go to the ethanol blenders rather than farmers.

The tax credit, Hanna said, “does little more than pad the pockets of big oil companies like Shell. The ethanol tax credit has already cost taxpayers more than $20 billion in the last five years and, if extended, taxpayers stand to lose billions more. Since the 1970’s, taxpayers have heavily subsidized corn ethanol. It’s time this mature energy industry stand on its own two feet.”

Legislators from agricultural states claim that ethanol won’t prosper on its own yet, and that more than 100,000 jobs would be lost if the credit were allowed to lapse.

The chairman of the Senate Budget Committee, Kent Conrad (D-N.D.), co-sponsored the bill and said that skyrocketing energy costs and reliance on oil imports put the country in danger.

“We must be committed to coming together in a bipartisan way to lessen our dependence on foreign oil, while aggressively pursuing alternative sources of energy such as biofuels,” Conrad said.

Resources Diverted

Congress mandated a huge scale-up of biofuel production with the Energy Independence and Security Act of 2007. Federal law calls for 12 billion gallons this year, rising to 36 billion gallons annually by 2022. By that point, 60 percent must come from advanced feedstocks like switchgrass.

Cox argues that extending the ethanol tax credits now will only divert resources from much-needed research into those second-generation fuels.

“The argument that is always put forward is that corn ethanol is a bridge to this future of next generation biofuels,” he said. “But it is actually sort of hard to parse out what exactly is that bridge. If we really want to get to advanced biofuels, why don’t we just focus on that?”

In spite of widespread support for the ethanol tax credit in the Corn Belt, passage of the legislation faces a steeper climb than in the past, he added.

From the livestock industry through the environmental community, opposition to the credit is larger and better organized than in past years. Rising prices of food for human consumption are often blamed on ethanol mandates, but much of the corn in this country is used for livestock feed. Groups like the National Cattlemen’s Beef Association have called for corn and ethanol prices to be set by the market rather than by government tax subsidies.

“Frankly, the bloom is off the rose in terms of perception among policy makers of the true benefits of corn ethanol,” Cox said.

Good idea, bad idea

The ethanol lobby is adamant that repealing the credit would be economically disastrous.

Brian Jennings, executive vice president of the American Coalition for Ethanol, said the tax credit pays for itself and then some through increased economic activity and tax revenues. Furthermore, he said, maintaining the money flowing toward corn ethanol will actually help the move toward advanced fuel sources.

“The surest way to prevent ‘next-generation’ biofuels from becoming commercially viable is to move away from corn-based ethanol, because without the successful production of corn-based ethanol today, tomorrow’s cellulosic ethanol will not be able to attract the capital investment and technology it needs to become a reality,” Jennings said.

“Extending the ethanol tax credit will save jobs and create new jobs, both in today’s ethanol industry and in the production of next-generation biofuels tomorrow.”

Elsewhere, however, second thoughts about the entire biofuels enterprise have started to creep further into public and policymaker consciousness.

In Europe, where biodiesel is the renewable fuel of choice, reports on indirect land use changes and potential environmental damage have started a push to ease back requirements on biofuel production. One recent report written for the European Commission and only released under a freedom of information request determined that when lifecycle emissions including indirect land use changes are taken into account, biodiesel from soybeans can emit as much as four times as much greenhouse gas as standard diesel fuel.

Some U.S. economists are also raising questions about the U.S. Environmental Protection Agency’s recent recalculation of lifecycle emissions for biofuels and its new determination that corn ethanol’s lifecycle greenhouse emissions are 20 percent less than gasoline’s.

It remains to be seen whether the powerful agricultural lobby and Corn Belt lawmakers can push the credit through, or if the coalescing opposition can put an end to the subsidy.

“We certainly think it should be allowed to expire,” Cox said. “It just looks like a poor solution.”


See also:

Algae Emerges as DOE Feedstock of Choice for Biofuel 2.0

Developing World Sees Wealth in Biofuel Production

Airlines Could Be Flying on Biofuel Within 5 Years


(Photo: spencerthomas/CC BY 2.0