Effort to shift industry incentives gains foothold in Washington

The Obama administration and biofuel-industry advocates are slowly backing off traditional tax incentives for corn-based fuels in favor of financing infrastructure aimed at increasing the distribution of renewable fuels.

The administration's biggest ethanol booster, Agriculture Secretary Tom Vilsack, acknowledged in a National Press Club presentation yesterday that changes to the current subsidy system may soon be in store. And the tariff on imported ethanol, he added, would "over time be phased out."

While he expressed support for extending ethanol tax subsidies, Vilsack urged industry to prepare for change. "We need," he said, "to begin to think about reforms to the ethanol credit program to make it more efficient and effective at addressing the full range of challenges we face in meeting our goals for traditional and next-generation biofuels."

Vilsack rolled out Agriculture Department programs yesterday aimed at promoting the development of pumps and other infrastructure for next-generation biofuels, a plan drawn from a proposed shift in biofuels policy that advocacy groups have been quietly rallying around in recent months.

The new USDA effort will help fund five biorefineries and bioenergy plants and 10,000 pumps and storage tanks for new blends of gasoline that contain a higher percentage of ethanol. USDA also finalized rules for a new program that will pay farmers up to 75 percent of their costs for establishing new energy crops, such as switch grass. The Biomass Crop Assistance Program will also subsidize the storage and shipping of new crops for biofuels.


Vilsack described the USDA push as a first step. The blender pumps -- which could offer a wide range of fuel varieties, including those with larger percentages of ethanol -- would affect less than a tenth of the more than 100,000 gas stations and convenience stores in the United States.

The government, he said, should also encourage the production of more flex-fuel vehicles.

"There have to be ways in which we can use these resources to expand the distribution system and encourage greater demand for the product," Vilsack said.

Saying he does "not have all the right answers," Vilsack noted that a "number of folks put ideas on the table."

Industry coalition's proposal

Vilsack's plan to promote flex-fuel vehicles and expand the network of biofuel pumps and storage tanks reflects a proposal that biofuels industry group Growth Energy has been promoting.

Growth Energy CEO Tom Buis hailed Vilsack's announcement, saying "there is no doubt" the Agriculture secretary and President Obama understand the need to support a domestic biofuels industry as a means of reducing the nation's dependence on imported oil.

Growth Energy last summer proposed phasing out federal subsidies worth $6 billion a year to its industry, with some of that cash going instead to infrastructure projects to expand blender pumps and biofuel pipelines.

It also called for all automobiles sold in the United States to be flex-fuel vehicles that could accommodate fuel that is up to 85 percent ethanol. Most gasoline now has a 10 percent ethanol blend.

The proposal caused a ruckus among biofuels-industry advocates, many of whom said the group was pushing a too-rapid change. But since then, Growth Energy and other major ethanol groups have been quietly working to gain consensus on a common platform and pitch it to Congress and the White House.

Representatives of the American Coalition for Ethanol, Growth Energy, the Renewable Fuels Association and the National Corn Growers Association say they are working on a long-term policy road map that includes a shift in support for infrastructure. Officials from the groups have met with lawmakers and administration officials.

In the short term, all the groups are asking for at least one more year of ethanol tax credits.

"We want an extension of [the tax credit] to give us time to work on a plan to develop market access. That's what we need," said Darrin Ihnen, chairman of the National Corn Growers Association.

Pivotal time

Their efforts come at a critical time for federal ethanol support programs.

Current ethanol credits will expire at the end of this year unless lawmakers agree to extend them during the lame-duck session next month. Congress has thus far been unable to extend a less costly and less controversial biodiesel tax credit that expired last year.

Midwestern lawmakers have been pushing for an extension, saying that tens of thousands of jobs are at risk if the credits are not extended. But others criticize the ethanol supports as too costly.

Senate Energy and Natural Resources Chairman Jeff Bingaman (D-N.M.) last summer promoted a Congressional Budget Office report that criticized the incentives and said the blenders tax credit for ethanol should not be "reflexively" extended.

A coalition of environmental, taxpayer, livestock and food industry groups have pressed lawmakers to cancel subsidies for corn ethanol and criticized the new proposals for infrastructure support.

Meanwhile, corn growers have been pushing for an extension of the tax incentives through 2015. But Ihnen acknowledged yesterday he doesn't expect to be able to get an extension for more than a year at a time.

"It's pretty clear that with the budget and this Congress, one [year] is where we are going to start, and it's probably where we're going to end," Ihnen said.

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