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Inside the Beltway: Focusing on VEETC and Possible Alternatives
by Eric Washburn

While it is only summer, Congress is already in the home stretch of this congressional session. Congress will be in recess for most of August and is planning on leaving in early October for the mid-term elections.

As it races toward the end of the session, among the tasks it is trying to complete is extending tax credits that 1) expired in late 2009 and 2) will expire at the end of 2010. The biofuels industry has a lot to lose if Congress cannot accomplish this goal. The biodiesel credit expired at the end of 2009 and has yet to be extended, dealing a harsh blow to that industry. The Volumetric Ethanol Excise Tax Credit (VEETC) is set to expire at the end of 2010. If it is not extended this year, many argue that the ethanol industry will be dealt a serious blow.

Our stalwart ethanol champions in the U.S. Senate, led by Senators Grassley and Conrad, have introduced legislation to extend the VEETC by five years. An extension of this length would provide important certainty for the industry. However, at a time when Congress is having an almost impossible time passing any legislation due to its inability to pay for the cost through offsetting budget cuts or tax increases, finding the roughly billion needed to enact a five-year VEETC extension may prove to be impossible. There is even talk on the Hill of passing only a one-year extension. And that assumes that the politics will allow any extension of soon-to-be-expiring tax breaks this year.

As the ethanol industry contemplates the potentially bleak future of the VEETC, it is worth noting that many in our industry argue that little of the economic value of that blender credit ever reaches ethanol producers these days. This realization should spark a healthy debate among ethanol producers and our supporters as to whether in the long-run it may make sense to explore alternative tax credit approaches.

The blender credit approach has served the industry well for over three decades, generating market demand and helping to keep the biofuels business profitable. But as market conditions have changed, ethanol plants are having difficulty breaking even on a consistent basis – even with the VEETC. Since enacting long-term extensions of these credits is increasingly challenging, it may now be time to explore whether there are other more affordable approaches that could bring greater direct economic benefits to ethanol producers in the years ahead.

 
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The American Coalition for Ethanol publishes Ethanol Today magazine each month to cover the biofuels industryís hot topics, including cellulosic ethanol, E85, corn ethanol, food versus fuel, ethanolís carbon footprint, E10, E15, and mid-range ethanol blends.
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