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Senate Tax Bill a Major Step Backwards for the Environment

Jim Presswood

Posted December 13, 2010

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The tax bill agreed to last Thursday by Senators Harry Reid and Mitch McConnell contains an energy package that would cause substantial environmental harm.  The offending provisions are the tax credits for corn ethanol and liquid coal.  While the bill contains several critically needed clean energy incentives, their environmental benefit is outweighed by the harm that would result from the ethanol and liquid coal incentives.  NRDC is therefore opposing the bill.  Our analysis of the bill and information on what you can do to help are below.

Liquid Coal

The bill extends a 50 cent per gallon tax credit for liquid coal transportation fuels – fuels produced by liquefying coal.  This provision must be stripped from the bill.  Congress should not be doing anything to help a liquid coal industry get off the ground.  The production and use of liquid coal fuels releases more than twice the carbon pollution as conventional fuels.  Even if some of the carbon pollution from the production process is captured and disposed, the fuel might still result in more pollution than conventional fuels.  There are also the severe environmental impacts from coal mining, which include habitat loss, groundwater contamination and mountaintop removal. 

The bill extends the tax credit provided by Sections 6426 and 6427 of the federal tax code.  While fuels qualifying for the credit have to come from production facilities that capture and dispose of 75% of their carbon pollution, that’s not enough to bring emissions down to parity with conventional fuels.  Moreover, this incentive is intended to commercialize a fundamentally flawed technology.  Once commercialized, there is little evidence that the next generation of plants will perform any carbon and capture at all.  My colleague Brian Siu's recent blog post and our liquid coal fact sheet provide more information about the problems of liquid coal and the bill's tax credit for this dirty fuel.

Corn Ethanol

The bill includes a one-year extension of the Section 40 corn ethanol tax credit.  The corn ethanol lobby went into this year demanding a 5 year extension of this credit (officially called the volumetric ethanol excise tax credit or VEETC).  The Senate and President Obama have seen fit to say no and only offer a one-year extension.  This will save tax payers $25 billion. But this is still a huge waste of tax payer dollars. Ending the tax credit now would save an additional $6 billion. Reducing the tax credit by 20% would save $1.25 billion.  Saying no to 5 years is a start, but Congress should go further and end this wasteful, environmentally harmful handout.  Sending 70cents of every renewable energy dollar to oil companies to use ethanol defies common sense. It is time to invest in new fuels and clean energy sources that provide long-term energy security and clean up the air and water that we all need..

Renewable Electricity

The bill contains a critically needed extension of the Convertible Renewable Tax Incentive for renewable electricity projects.  As discussed in this NRDC blog post, Congress enacted the program to provide renewable projects that qualified for federal tax credits to take a grant in lieu of the tax credits, which became essentially worthless because of the recession.  There has been little change in these economic conditions , so extending the program is essential to the continued growth of the renewable energy industry.  According to this study by the U.S. Partnership for Renewable Energy Finance, an extension would help to create or preserve 100,000 jobs.   


The bill makes minimal progress to promote energy efficiency. On the positive side, it extends the credit for energy efficient new homes (Section 45L), which has been caught in limbo since it expired in 2009. We are pleased to see this extension apply retroactively to 2010 and through 2011. The bill also extends the credit for manufacturers of energy efficient refrigerators, dishwashers and clothes washers, but cuts the amount of the credit by two-thirds for any individual taxpayer. While the bill also extends the credit for energy efficiency in existing homes (Section 25C), it does so in a way that cuts out the legs from under it. Unfortunately, the current extension of Section 25C is too measly to encourage most homeowners to invest in energy efficiency (in particularly energy efficient equipment like furnaces and water heaters) and many homeowners won’t even be eligible.

What’s Missing?

The bill does not include an expansion of the Section 48C advanced energy manufacturing tax credit.  This credit is an essential federal investment needed to help retool America’s factories to make clean energy technologies possible.  The limit on the total amount of tax credits available under the provision was quickly reached after Congress enacted it, leaving more than $5.8 billion in applications that could not secure tax credits.  Congress should increase the limit on the total amount of tax credits by $5 billion to help create green jobs right here in America.

What can you do to help?

Both the Senate and House are considering the bill, and could be voting any day now on whether to pass the legislation.  Contact your Senator and Representative as soon as possible. Call the House at 202-225-3121 and then call the Senate at 202-224-3121. Urge them to make sure the final bill promotes clean energy and good jobs, and not more harmful, wasteful spending.  More specifically, they should 1) strip out the liquid coal tax credit, 2) remove (or at least reduce) the corn ethanol tax credit, and 3) use the money saved from cutting the dirty fuel credits to offset the cost of adding the Section 48C advanced energy manufacturing tax credit.

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Dave G.Dec 13 2010 09:43 AM

Misguided jouranalism at its finest. The only problem with the corn ethanol tax credit being extended is that it was or will be only extended for one year instead of five the way it should be. I guess this editor prefers buying his fuels from the middle eastern nations that hate us and he has no problem either with sending our young men and women over there to fight and die to protect his precious fossil fuels.

Whereas, I prefer to use our own resources to produce a renewable form of energy that gives people here in this country jobs and keeps the money here in this country. For every energy unit that goes in 2.3 to 2.7 come out, those are the latest figures from the USDA. There is nothing wrong with using corn to fuel our cars because there is plenty of corn to go around and as yields per acre go up, corn once again will be even more plentiful and cheap( not that it matters when it comes to food prices because we all know its the cost of transportation that really drives food costs ). And also with the high octane in ethanol, its just a matter of time before the Big 3 start building motors that are optimized for ethanol that will be as fuel efficient as gasoline. See the new Buick Regal.

If this editor is determined to get rid of ethanol, then I suggest he and Nathaneal Greene, travel through the midwest and do town hall meetings and face farmers and their families and explain to them why they want to put them out of business.

Janet SmithDec 13 2010 10:58 AM

Nowhere did the writer say he preferred fossil fuels. He prefers alternatives to CORN ethanol, and there are several of them that have not been developed aggressively, partly, I suspect, because of the corn lobby.

There's not much denying that when corn ethanol became a supported fuel supplement, the price of corn-based food products went up more than other foods that were impacted by transport costs. There's plenty of demand for corn as food. The anticipated per acre yield increases will be accomplished by the use of GMO seed and high levels of fertilizer, pesticide and herbicide use, all of which have their own serious environmental consequences.

One alternative is ethanol from other plants. Three possibilities already established as producing MORE ethanol per plant mass than corn are: kudzu (and do you think there's a landowner in the south that would mind harvesting kudzu if they could be paid for it?), white yams (not the same as food yellow yams), and switchgrass. All are under investigation as potential "specialty crops" (high income for small acreage) to increase the productivity of small family farms.

James ThurberDec 13 2010 11:21 AM

The corn ethanol mandates and subsidies are the true legacy of Al Gore.

When are real environmentalists going to wise up and see the him for the charlatan that he is?

Steve K.Dec 13 2010 12:35 PM

Janet--the ethanol industry does not care what crop you use to produce ethnaol. the blender will still receive the VEETC and it will have the protection of the tariff. The largest producer of corn ethanol is also on the cutting edge of making cellulosic ethanol cost effective. What people need to understand is there has to be a solid market for research to continue. No funding is available if there is not a market for the product. WHEN not if cellulosic ethanol is on the market it will have enormous environmental benefits. It won't happen if corn ethanol growth is not encouraged.

biobloggerDec 13 2010 12:39 PM

The impact of reducing subsidies will be felt by all ethanol developers, not just those who sell corn ethanol. The abrupt cessation of VEETC would impact emerging and small ethanol producers of all biofuels more than those that are established because the subsidies support not only fuel sales but also infrastructure and market development. Without that, cellulosic ethanol and other biofuels don't have a chance at market entry.

It isn't enough to criticize a technology because it isn't perfect. If it is a means to a better paradigm (biogenic vs. fossil fuels) then it should be respected as such. We can't expect the government to fund, Manhattan Project style, the R&D and deployment of oil alternatives. Congress and the Executive Branch (for now) realize that we need investors to step up and assume the risks of new industry development. Hence, subsidies, RECs, and loan guarantees. But investors suspect that the government energy policy is extremely fickle and political. An abrupt end to the subsidies would only succeed at validating that suspicion.

This is about liquid alternatives to oil - not windmills and solar cells. NRDC needs to decide whether they support biofuels or not. If not, what other liquid fuel alternatives are there? If they do, they have got to realize it is a long-term commitment. They need to demonstrate to developers and investors that they won't undermine policies that move biofuels market entry and infrastructure development forward.

James ThurberDec 13 2010 01:32 PM


Yours is the old "bait and switch" argument that is being used by the corn lobby. The fact is that there is no known method for producing ethanol commercially from sources other than corn or sugarcane, and ethanol production from corn is only viable because of mandates and the VEETC. The reason that the U.S. does not produce ethanol for sugarcane is that it is rendered uneconomic by a system of tariffs and price supports that causes the sugar price to be two to three times that of Brazil. (That's also why we produce the abomination known as high fructose corn syrup - recently reborn with the politically correct name "corn sugar".

If the U.S. were serious about biofuels, it would simply reform sugar policy. This, of course, will not happen.

Rick MitchellDec 13 2010 02:43 PM

This is a prime example why the tax code should not be used as a social engineering tool. The right hand gives and the left takes.

Jacob ClereDec 13 2010 05:44 PM

I worked with corn ethanol production in Indiana. The farmers I worked with explained that they had to use significantly more fertilizer on their crops because they were scrapping the stalks and plant matter for Purdue University's cellulosic ethanol program. Now, cellulosic ethanol was supposed to be the justification/dream for ethanol, but if its production forces a rise in nitrogen-based fertilizers... we're not really making progress. Couple this observation with rain forest destruction in the Amazon for sugarcane plantation expansion, and ethanol begins to look like a very ugly, very undesirable thing. At the very least, it doesn't merit federal subsidies. So, Kudos to you Jim for telling it like it is.

Bill BrandonDec 15 2010 01:19 PM

I follow NRDC blogs and comments and generally find them a source of misleading or incomplete information and myths from both the blogs and comments. It is refreshing this time to see a couple of comments showing some knowledge about the ethanol industry and its role in advanced biofuels. Bioblogger is right on with his comments.

James Thurber - there are several commercial ethanol facilities using crops other than corn. Sweet sorghum and Sugar beets are used. One of my favorites is winter barley used by Osage bioenergy. This is an approach advocated by the Chesapeake Bay Foundation to remediate soil erosion and winter nitrogen leaching.

Janet Smith - There IS a lot of debate about the cost of food being related to ethanol production. The USDA says increases are miniscule at best. When You factor in the fact that ethanol moderates petroleum prices, possibly as much as 15%. ethanol actually LOWERS food prices. Show me your figures. In addition, fertilizer application has been flat for 20 years. Increased production has not used more land or more fertilizer, just better agriculture efficiencies.

Jacob Clere -The Amazon forests ARE NOT being cut down for sugar cane production. Sugar cane is grown toward the south in the savanna regions. The Brazilian government has done a study of areas suitable for expanding agriculture. Only a small coastal area of the Amazon near Guyana is included and the government opposes practices that destroy the rain forest.

The general public and the NRDC need to get their facts straight and up-to-date. The advancement of biofuels and their appropriate uses are critical for both our economy and our environment.

Comments are closed for this post.


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