Ethanol industry considers reform ahead of key meetings with leaders
PHOENIX -- The ethanol industry needs to quickly get behind a reform program to take to Congress and has key meetings planned in Washington, industry leaders said at the National Ethanol Conference Feb. 21 and 22 in Phoenix.
"We need to unite," Renewable Fuels Association President and CEO Bob Dinneen said in a speech Feb. 21. "We need to focus our agenda; this is not a time for a wish list. We need to develop the technical support Congress will demand. And we need to go to Capitol Hill, speaking as one voice, educating the more than 100 new members of Congress that are new to this debate and may only have learned about ethanol from the pages of the Wall Street Journal. If we do that, as we have when facing the insurmountable opportunities of the past 30 years, we will succeed again. If we don't, we will miss a critical opportunity to move this nation further away from imported energy."
The ethanol industry has been supported for many years by the volumetric ethanol excise tax credit known as VEETC, which reduces blenders' taxes by $5 billion to $6 billion per year. Congress extended it in December as part of the tax package, but the extension expires at the end of this year.
"The message from that debate was unambiguous. Our industry needs to work with Congress and the administration to reform the tax incentive moving forward," Dinneen said.
National Corn Growers Association CEO Richard Tolman said in an interview on the sidelines of the meeting that the four major ethanol groups -- National Corn Growers Association, RFA, Growth Energy and the American Coalition for Ethanol -- have a discussion paper under consideration and were planning another meeting to try to reach agreement.
Both Tolman and Dinneen said the groups agreed on major sections of the proposal, but not all of it.
Both men declined to discuss the proposal, but other industry sources said it most likely would involve reducing the VEETEC in exchange for federal help getting more flex fuel vehicles on the road and getting gas stations to install pumps that would sell ethanol as well as other gasoline. The industry's big challenge no longer is production, the source said, but making ethanol more accessible to American consumers and convincing them to buy it.
In his speech, Dinneen noted there are several proposals under discussion besides the VEETEC phase-down: A refundable producer tax incentive that might be more politically viable than a market-based incentive; a limitation on the incentive only to gallons above the renewable fuel standard obligations or only for mid-level ethanol blends and E85; a carbon-based performance credit; and a variable tax incentive tied to the price of oil, and/or crush margins that would provide a consumer safety net.
"Frankly, each of these has both advantages and
disadvantages," Dinneen said. "Ultimately, the arbiter will be Congress, and we will all have to live with the consequence."
Ethanol leaders also have a meeting scheduled with Sen. Charles Grassley, R-Iowa, Tolman said. Grassley, who played a major role in last year's VEETEC extension and who is one of the strongest supporters of ethanol on Capitol Hill, spoke to the conference by videotape.
Grassley derided ethanol critics' charges that ethanol is to blame for the riots in Egypt, and said, "Ethanol is a scapegoat for the big food producers to raise prices." He told the 1,300 farmers and other ethanol industry officials attending the meeting, "I need your help more than ever. I need you to be more vocal and influential, to present arguments effectively, timely and very proactively. Be fully engaged and focused."
Dinneen followed up on Grassley's point, pointing out that there are 204 biorefineries in 29 states and telling the crowd, "You need to be talking to members of Congress.
"The American ethanol industry is no longer a Midwest phenomenon . . . biting at the ankles of the petroleum industry," he said, but an industry that produces 13 billion gallons of ethanol per year, one-tenth of the nation's gasoline supply. The American ethanol industry is the largest in the world, he noted.
Dinneen described 2010 as a year of great accomplishments for the ethanol industry, with the EPA authorizing E15, the Energy and Agriculture departments making loan guarantees to encourage production, and exports of 350 million gallons to Canada, Europe and even Brazil, the United Arab Emirates and Saudi Arabia.
But he said though the industry prevailed when President Reagan wanted to end the ethanol program and has managed to get it extended four times, 2011 will be a challenge.
"Today, Washington is consumed with putting its fiscal house in order -- disorder created in no small part by the economic turmoil caused by the $140-per-barrel oil price and the subsequent economic freefall," Dinneen said. "Congress and the president are facing a mountain of debt. The $1.5 trillion budget deficit now represents almost 10 percent of our GDP. And the astonishing $14 trillion national public debt is about equal to total GDP. Reigning in spending and balancing the budget will be the No. 1 priority over the next several years. Capitol Hill is now ruled by bean counters, and its affects will be seen in every bill moving through Congress.
"If the president of the United States is willing to put heating assistance for poor Americans on the chopping block, if the Congress can cut NASA, funding for local police, rural development programs and food assistance for low-income women, infants and children -- then few programs will be spared," Dinneen said. But he noted that Congress has been unwilling to strip tax incentives for the petroleum industry.
The convention took place just after the ethanol industry suffered defeats during the House consideration of the bill to fund the government for the rest of the fiscal year. In that bill, which cut $60 billion in spending, the House passed amendments sponsored by Reps. John Sullivan, R-Okla., and Jeff Flake, R-Ariz., that would bar funding for the EPA to implement its decision to allow up to 15 percent ethanol blends for use in cars, pickups and SUVs built in model year 2001 and newer, as well as prohibiting USDA and EPA funds from partnering with private companies to install blender pumps that dispense mid- to high ethanol blends. When those votes occurred, RFA said "political science trumped physical science" and that House members would deny consumers a choice of fuel.
"I can assure you that an expiration of the tax incentive is a very real possibility," Dinneen told the RFA members. "Budget constraints, seemingly unavoidable gridlock and dysfunction, and the mixed messages Congress is hearing from the industry and agriculture these days may lead them to take no action at all. Such an outcome would put the future of this industry in jeopardy. While this outcome is possible, it is by no means predestined."
The ethanol industry, he concluded, needs to build bridges to consumers, customers and lawmakers.