Corn ethanol industry reads the tea leaves and sees defeat
Posted December 8, 2010
As the Senate gets closer to voting on the possible extension of various tax incentives for renewable energy, including the Volumetric Ethanol Excise Tax Credit or “VEETC”— the main corn ethanol tax credit set to expire at year-end—we thought it was a good time to take stock of where we are and where we’ve come from.
As the VEETC’s sunset date approached, the conventional wisdom was that the corn ethanol industry was too strong to take on. Industry lobbyists, led by the Renewable Fuels Association (RFA) mounted a massive campaign to push for a 5-year extension of the VEETC at its existing rate of $0.45 cents per gallon, at a whopping price tag of more than $31 billion. To make their case, groups like Growth Energy and RFA seemed to be in competition for who could make the most inflated claim about ethanol industry job creation and continued to issue alarmist prognostications about how ending the VEETC would cause domestic ethanol production capacity to collapse and ethanol prices to plummet.
At the same time, the corn ethanol industry continued to fight the science on indirect land use change (ILUC), which is increasingly raising serious concerns about the pressure corn ethanol production was putting on valuable lands around the world, as more and more corn is diverted from food and feed to the production of fuel.
But along the way, rigorous analysis and sound science began to gain momentum. The non-partisan Congressional Budget Office published a sobering study on the cost of the corn ethanol tax credit and the U.S. Department of Agriculture’s own Economic Research Service found that eliminating ethanol tax credits would grow U.S. GDP by $4-6 billion, whereas continuing the tax credits would decrease GDP by $4-6 billion due to foregone revenues. Likewise, academic study after academic study highlighted the redundancy of the VEETC with Renewable Fuels Standard (RFS) blending mandates in place, and concluded that ending the VEETC would have little impact on domestic corn ethanol production or jobs.
In addition, agencies like the California Air Resources Board and the Environmental Protection Agency continued to follow the science on ILUC, modeling baselines of what the global supply of cropland would have looked like absent the rapid expansion of the U.S. corn ethanol industry, estimating the ILUC-related carbon emissions associated with different biofuels, and requiring that ILUC emissions be accounted for in meeting both California’s Low Carbon Fuel Standard and the federal RFS.
As the opposition to an extension of the VEETC grew, public support for corn ethanol subsidies waned, and lawmakers from both sides of the aisle began standing up to corn ethanol lobbyists, even the corn ethanol industry’s unity began to fracture.
Today, RFA is singing a remarkably different tune. In an attempt to read the tea leaves on the fate of the VEETC, RFA spokesman Matt Hartwig wrote this today [emphasis mine]:
"As much of the concern about extending expiring Bush-era tax cuts is focused on jobs and the economy, we encourage members of Congress to recognize the importance of VEETC to the economy of rural communities and the jobs of Americans that are at risk if it is allowed to expire. An extension of VEETC, even for a short period of time, will provide the market some breathing room as good faith discussions on responsible reform to VEETC and all other energy tax policies occur in the next Congress."
It seems that Hartwig knows the corn ethanol industry has already lost the fight. Instead of the five-year extension in subsidies RFA spent the year pushing on taxpayers, it seems they’ve now accepted that the most they’ll see from Congress is a one-year VEETC extension. And in all likelihood, the one-year tax credit will be lowered by 20% to $0.36 cents per gallon. As my colleague Nathanael points out, that’s a victory for all of us worth billions.
We've come a long way. Congress must now show support for the technologies that will actually help us transition to a clean energy economy by zeroing out the VEETC and instead investing in an extension of grants for clean energy projects and energy efficiency tax credits for things like high efficiency new homes, which will help protect our environment and create the green jobs we need right here in the U.S.