NSAC's Blog

Senate Bills Take Different Routes to Phase-Out Ethanol Tax Credit

May 6, 2011

This week saw the introduction of two Senate bills with different routes to phasing out the Volumetric Ethanol Excise Tax Credit (VEETC) for ethanol blended with gasoline and a tariff and ad valorem tax on imported ethanol, both of which are intended to stimulate ethanol production in the U.S.  Last December, Congress approved legislation that extended until December 31, 2011, the 45 cents per gallon VEETC, as well as the 54 cents per gallon tariff and ad valorem tax of 2.5 percent on imported ethanol.

Opposition to the VEETC and ethanol tariff has intensified in 2011.  Those opposed to the VEETC represent a wide array of perspectives.  On March 1, 2011, business associations, taxpayer advocates, hunger and development organizations, numerous agricultural groups, free-market groups, religious organizations, environmental groups, budget hawks, and public interest organizations joined on a letter to House and Senate leadership  urging that Congress allow the VEETC to expire at the end of 2011 and that federal funding not be used for infrastructure for conventional biofuels, including corn ethanol.

On May 3, U.S. Senators Tom Coburn (R-OK) and Dianne Feinstein (D-CA) introduced the Ethanol Subsidy and Tariff Repeal Act, which would repeal both the VEETC and the tariff on imported ethanol by no later than June 30, 2011.  The Act was introduced as an amendment to a small business bill that was subsequently withdrawn from consideration.  It is likely that the Act will be offered again as an amendment to another bill.

Another more lengthy approach to phasing out the VEETC is provided in S. 884, the Domestic Energy Promotion Act of 2011.  This bill was introduced May 4 by Senator Chuck Grassley (R-IA), with support from a bipartisan group of Senators including Kent Conrad (D-ND), Mike Johanns (R-NE), Amy Klobuchar (D-MN), Al Franken (D-MN), Tom Harkin (D-IA) and Tim Johnson (D-SD).

The bill would reduce the VEETC to 20 cents in 2012 and to 15 cents in 2013.  The VEETC would then become a variable tax credit until its complete phase-out at the end of 2016.  The amount of the VEETC would vary inversely with the price of crude oil, ranging from 30 cents when crude oil is at $50 per barrel or below down to zero when the crude oil price exceeds $90 per barrel.  The bill would also extend a cellulosic ethanol tax credit of $1.01 per gallon and continue the ethanol import tariff at a reduced rate of 20 cents for 2012 and 15 for 2013 through 2016.  In addition, a property tax credit would be modified to provide a 100 percent tax credit for the costs of dual-use gas station pumps for ethanol blends from E20 to E85, as long as some dual-use pumps are used for the alternative fuel blends.

We are hopeful that congressional action on the tax credit will lead the Administration to rethink its strategy of commandeering Farm Bill money, in the form of Rural Energy for America Project (REAP) dollars, to subsidize gas stations and oil companies for the cost of installing flexible fuel pumps.

Categories: Conservation, Energy & Environment

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