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What was lost in the ethanol compromise

After the ethanol compromise was announced by members of the U.S. Senate Thursday, Growth Energy’s CEO, Tom Buis, pointed out that a compromise means that opposing interests give up something.

In fact, the ethanol industry gave up quite a lot—if the agreement becomes law. But it got more than is likely if the blender’s tax credit is allowed to expire on schedule next December 31 and Congress does nothing.

“I think Senators (John) Thune and Senator (Amy) Klobuchar have done a fantastic job of getting what they could,” Buis said of the two midwestern senators who tried to salvage some benefits for the ethanol industry.

The agreement would kill the blenders tax credit of 45 cents per gallon at the end of this month, saving the federal treasury $1.3 billion this year. But it extends smaller tax credits to help pay for blender pumps at service stations and to keep the $1.01 a gallon tax credit for cellulosic ethanol through 2015, benefitting an industry that remains tiny compared to corn ethanol.

The cellulosic and corn ethanol industry aren’t entirely separate, either.

On Thursday, the Department of Energy announced a $105 million loan guarantee to help POET build a commercial cellulosic plant at Emmetsburg, Iowa. POET is also one of the largest makers of corn ethanol and a supporter of Growth Energy.

The ethanol compromise won’t provide loan guarantees for a dedicated pipeline for ethanol, or mandate that automakers build more flexible fuel vehicles.

“Right now, that’s not in the agreement,” Buis said.

Those were part of Growth Energy’s “Fueling Freedom Plan” and they were incorporated into legislation that was reintroduced by Senator Tom Harkin (D-IA) earlier this year.

The compromise also lacks any protection for the ethanol industry if oil prices fall. That was part of legislation introduced in May by Senators Chuck Grassley (R-IA) and Kent Conrad (D-ND). Their bill would have phased out the ethanol tax credit over the next two years, then instituted a tax credit that would gradually increase as oil prices fell below $90  a barrel.

Grassley seemed to express disappointment in a statement released by his office Thursday:

“All things considered, it’s good news that an agreement was reached that salvages some of the effort to reduce America’s dependence on foreign oil,” he said.  “I wish it would have included a more robust investment in alternative fuel infrastructure and cellulosic ethanol.  Overall, the fact that this happened in a vacuum, rather than in an even-handed debate over all energy tax incentives, will always be a raw deal, especially for taxpayers and renewable fuel producers.”

Matt Hartwig, a spokesman for the Renewable Fuels Association, added later on Thursday that the extension of the tax credit for cellulosic ethanol isn’t quite as good as it seems. From 2013 on, the amount of the tax credit will be capped and might not be enough if the cellulosic ethanol industry takes off. That, he said, could discourage investment in cellulosic ethanol.

One group pleased by Thursday’s announcement of a compromise is UNICA, the Brazilian Sugarcane Industry Association. That’s because the agreement also ends the 54 cent-a-gallon U.S. tariff on imported ethanol.

“Brazil ended trade-distorting subsidies for ethanol more than a decade ago and eliminated its ethanol tariff early last year. We are pleased that this agreement would have the United States do the same,” said the group’s North American representative, Leticia Philllips in a statement. “As the world's top producers of ethanol, the U.S. and Brazil should lead by example in creating a free market for clean, renewable energy.”

Right now, the United States is exporting ethanol to Brazil, where production of ethanol from sugar cane has been reduced by a short crop. And, U.S. ethanol plants are making more ethanol than can be blended into U.S. gasoline at the 10% level, so they’re increasing exports.

In the long run, though California is likely to import Brazilian sugar cane ethanol because it’s considered to have a smaller carbon footprint by the California Air Resources Board.


California Senator Dianne Feinstein, a Democrat, has been pushing for the elimination of both the blenders credit and the tariff.

When she announced the compromise with Thune and Klobuchar, she said the three are urging Senate leaders to act on their proposal before the August recess.

“This agreement is the best chance to repeal the ethanol subsidy, and it’s the best chance to achieve real deficit reduction. Absent this agreement, taxpayers stand to lose $1.33 billion—that was the bottom line for me," Feinstein said in a statement.

“Every month that passes without repeal costs taxpayers $400 million. After years of fighting, there is simply no guarantee a full repeal would be signed into law,” she added. “I believe this bipartisan agreement should be included in the deficit reduction package that will likely accompany a vote on raising the debt limit, and I hope the president will consider that approach.”

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