Repealing ethanol subsidies

June 17, 2011

Economic Development, Energy

How would an eventual tax credit repeal affect Mississippi ethanol producers, the ag industry and consumers?

By Amy McCullough

The U.S. Senate cast a symbolic vote yesterday to end the multi-billion dollar  subsidy to corn ethanol producers that has   been in effect for three decades.

The repeal is an amendment that will be tacked onto a bill which won’t likely pass the Senate, much less the House. It would end the gasoline blenders’ current tax credit of 45 cents for every gallon of ethanol they blend with motor fuel as well as a tariff of 54 cents a gallon on imported ethanol.

Two questions come to mind:

(A) If and when a repeal does pass, how will that affect the ethanol and ag industries?

(B) Does corn ethanol production negatively affect food prices?

Mississippi experts weigh in:

  • Kirk Latson is senior vice president of fuels marketing at Mississippi’s Ergon Inc., which jointly owns the $100 million ethanol production facility, Bunge-Ergon Vicksburg LLC.

(A) “I suspect you’ll see a phase out within two or three years. … Losing the VEETEC (oil blender’s credit) – the impact that’s going to have is raising gasoline prices for the consumer. The ethanol producer doesn’t get (the tax credit). They sell the ethanol to the wholesale gasoline supplier or refiner. The refiner blends it with gas. They pass it on as a line item cost to the retail operator.” Latson noted that the federal Renewable Fuel Standard is still in place, mandating $12.6 billion gallons of ethanol must be used annually.

(B) “The debate will go on forever, but the picture is not as bad as everyone thinks.

“If you sit down and look at the information and go back to ’04 and ’05 and compare the net corn to the ’09 and ’10 crops, yes, ethanol has taken more corn. But we planted more acres …the yield is better. You’ve got very little change on net corn.

“At the end of the day, if you look at everything. When you process corn for ethanol, one-third of it comes back as DDG (dried distillers grain), which is used for feed for animals such as cattle and pigs.” Ergon sells all its DDG locally.

  • Sumesh Arora, director of Strategic Biomass Solutions under the Mississippi Technology Alliance (paraphrased):

(A) If you look at the national energy policy “there is no coherent national energy policy. That’s a major issue.”

If ethanol tax credit repealed, in the long run, biomass ethanol plants will be OK.

(B) Ethanol (made from corn) doesn’t affect food prices as much as it’s made out to be. Internationally, droughts affect corn prices, and as countries develop, their diet changes. Developing countries eat more meat, and we use corn as feed for animals. Soybeans, which are not used for ethanol, are high right now. So is wheat.

  • Roger Barlow, president of The Catfish Institute:

(B) “Corn is the key ingredient in catfish feed. Rising commodity prices has affected our industry dramatically … I definitely think corn is not an effective feedstock for ethnaol. I wish they would utilize othe rbiomass for it.”

  • Mark Leggett, president of the Mississippi Poultry Association, the representing Mississippi’s largest ag industry:

(B) “About 70 percent of the cost of raising a chicken is the feed, which has corn and soybeans as the two main ingredients. It can’t help but have an effect when you take 35 to 40 percent of the corn and turn it into ethanol.”

  • Sen. Thad Cochran was not available yesterday, but spokesman Chris Gallegos offered the following:

(A) “It is questionable how corn prices might be affected by the loss of the subsidy. The demand for corn ethanol will remain. Even without the subsidy, the federal Renewable Fuel Standard will continue to mandate that increased levels of corn ethanol be blended into gasoline. That volumetric mandate requires 12.6 billion gallons of corn ethanol this year, increasing annually until a 15 billion gallon threshold is reached in 2015.”

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