VEETC in transition

(article by Jacqui Fatka, “Ethanol Can Survive Without VEETC”, Posted by FarmFutures)

The ethanol blender’s tax credit (Volumetric Ethanol Excise Tax Credit – VEETC) provides blenders and marketers with a 45-cent per gallon credit for every gallon they blend with gasoline. The measure was extended for one year in last year’s lame duck session.

On May 3, U.S. Sens. Tom Coburn, R-Okla., and Dianne Feinstein, D-Calif., introduced the Ethanol Subsidy and Tariff Repeal Act which would repeal both VEETC and the tariff on imported ethanol by no later than June 30, 2011. Livestock groups have supported the legislation.

The day after the legislation was introduced, livestock, poultry and meatpacking industries appealed to the bipartisan “gang of six” senators attempting to draft a budget compromise for 2012 to eliminate the ethanol tax subsidy. The groups note VEETC benefits oil companies and “a number of studies by well-respected economists have confirmed that eliminating the VEETC would only minimally impact the quantity of ethanol manufactured as the quantity relates to the Renewable Fuels Standard,” the groups added.

A bipartisan group of senators, led by Sen. Chuck Grassley, R- Iowa, introduced legislation that would reduce the current blender’s credit for a two year period before transitioning to a tax credit that would adjust based on the price of oil. This legislation would also improve upon current tax credits for the installation of blender pumps and ethanol fueling infrastructure. Additionally, the bill would extend tax credits for small ethanol producers as well as for advanced and cellulosic ethanol. 

A new CARD analysis found that the absence of VEETC would have lowered corn prices by only 4% from 2004 to 2009. In addition, with or without VEETC, corn prices would have still risen from 2005 to 2007 and declined through 2009.

The ethanol industry recognizes that the political climate has changed on support for ethanol subsidies, especially after this winter’s House vote against E15 implementation and blender pump funding.

Growth Energy has been in favor of eliminating ethanol support in exchange for increased infrastructure funding. Growth Energy Tom Buis criticized the Coburn bill because it does not adequately address ethanol within a wider energy policy.

In April, the National Chicken Council (NCC) recommended a plan be implemented that would reduce the Renewable Fuels Standard when the stocks-to-use ratio for corn drops to low levels, as the situation is now, industry executive Michael Welch said on NCC’s behalf at a hearing held by the Livestock, Dairy and Poultry Subcommittee of the House Agriculture Committee.

Welch urged Congress to adopt a contingency plan or “off-ramp” from the Renewable Fuels Standard, which is the law requiring that a fixed amount of ethanol be added to motor fuel every year.

“Unless there are perfect crop conditions this year to plant, grow, and harvest a record quantity of corn, animal agriculture will experience major disruptions while ethanol producers will continue to outbid non-subsidized buyers of corn,” he warned.

The mandate should be reduced to allow non-ethanol users greater access to corn, Welch said. Farmers should also be allowed to withdraw non-environmentally sensitive acres from the Conservation Reserve Program without penalty.

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Our Take:
The CARD report confirms what many others have reported–VEETC doesn’t affect the volatility of the commodity markets.

In regards to the comments of Welch and the Chicken industry, no one is expressing more concern about corn price impacts than corn producers.  They don’t want to see their number one customer–animal farm producers–hurt by feed prices that reach irrational peaks. The last peak in corn prices in 2007 provided its own “off-ramp,” and it was ethanol producers like VeraSun that went into the ditch, right alongside numerous livestock farmers.

Monkeying with RFS will not protect livestock producers. The market signals that would produce would lower corn production, not increase it.

What will protect animal agriculture is to work with corn and ethanol producers to a)assure that distillers grains can supply a major portion of what they need, and b) do what we can to keep crop markets strong, because this will speed the availability of promised seed technology that increases the water efficiency (i.e. drought resistance) and pest-protection in corn varieties. These technologies alone won’t assure bumper crops every season, but they will assure that bins will contain a good supply year-in and year-out so that the carryout can build back adequately.


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