Energy tax policy – ethanol meets the challenge while big oil continues to resist

As introduced by Senator Grassley, Senator Kent Conrad, and six other senators, the Domestic Energy Promotion Act of 2011 does exactly that. This legislation directly addresses fiscal concerns while not compromising the growth and evolution of the industry. Rather, smart tax policies included within this bill provide necessary incentives to expand ethanol refueling infrastructure for higher level ethanol blends and accelerate the commercialization of advanced and cellulosic ethanol technologies. 

The fact is, while much progress has been made in building a domestic renewable fuels industry, it is still at the mercy of the OPEC-dominated oil market. As Energy Information Administration head Richard Newel recently said to a conference in St. Louis, “the future of biofuels is tied to the price of oil.”  Ethanol’s connection to the price of oil is at the center of this new bill.

Specifically, this legislation would transition the current ethanol tax incentive to a variable tax incentive that would adjust with changes in the price of oil. Under this bill, if oil prices exceeded $90 per barrel, no tax incentive would be available. Such is the situation today. 

If oil prices were to fall, the tax incentive would adjust accordingly to a maximum value of 30 cents a gallon at oil prices below $50 per barrel. Even in this unlikely scenario, the price tag of the tax incentive would be dramatically lower than today. 

Importantly, the Domestic Energy Promotion Act improves upon existing incentives for ethanol refueling infrastructure to accelerate the installation of technologies like blender pumps offering a range of ethanol blends. Current policy allows gas stations a tax credit from 30 percent of the cost of installing such pumps, up to $30,000. This legislation would make up to 100 percent of the cost eligible for a tax credit if the pump offers at least one ethanol blend option between 20 and 85 percent ethanol by volume.

Equally critical, this bill would extend tax incentives for advanced and cellulosic ethanol producers. More policy stability, particularly with respect to the tax code, is essential for these promising biofuel producers to attract capital investments needed to begin commercial production. Together with a build out in infrastructure, these tax credits will help the domestic industry evolve to meet the demands of the American people and the goals of the Renewable Fuels Standard. 

As an industry that has benefited from federal policy and taxpayer investment, we believe the Domestic Energy Promotion Act is truly a good faith effort to be responsive to budget constraints while remaining on track to meeting and exceeding the nation’s renewable fuel goals.  But the burden of addressing fiscal concerns in the energy sector should not fall to the ethanol industry alone. Very mature, profitable energy industries still avail themselves of very generous tax provisions even as America staggers from sticker shock at the pump. America’s ethanol industry has stepped up to the plate. Given the high price of oil, there is no reason that other energy suppliers can’t do the same.

Bob Dinneen is the president and CEO of the Renewable Fuels Association, the national trade association for the U.S. ethanol industry.