Dinneen — Ethanol: Moving Forward

By Bob Dinneen
CEO, Renewable Fuels Association and Digest columnist

We are now more than a decade into a new century but you likely wouldn’t know it by listening to the energy debate on Capitol Hill.  Confronted by high gas prices, many lawmakers are clamoring for a drill, baby, drill approach to develop what is left of America’s oil reserves.  Lawmakers with the audacity to oppose such measures, or to suggest the nation stop subsidizing the oil industry, are subsequently shouted down.  They in turn accuse supporters of oil production of schilling for Big Oil and destroying the planet.

Lost in the drone of mudslinging is a realization that this debate is about 20th century technologies and energy sources.  The discussion is about whether or not to develop more oil and other fossil fuels at potentially great economic and environmental cost.  The debate is on whether or not centuries-old industries should still be subsidized by American taxpayers.  The dialogue should instead be focused on transitioning America’s energy economy and the policies that support it.  We should turn away from an obsession with the past and toward an embrace of the future.

In introducing the Domestic Energy Promotion Act of 2011, Senators Chuck Grassley (R-IA) and Kent Conrad (D-ND) and a bipartisan group of 6 senators have taken the first steps to making that transition a reality.

For almost three decades, America has put tax policy in place that has incentives for the use of ethanol.  As a result, the U.S. has built and currently operates more than 200 ethanol biorefineries all across the country.  We have seen ethanol grow to more than 13 billion gallons of annual production and become 10 percent of the nation’s gasoline supply.  More than 400,000 Americas are employed in part by domestic ethanol production and we are able to reduce America’s need for imported oil by 445 million barrels a year.

As a result of a strong commitment to domestic ethanol production, the industry has evolved.  And, so too must the policies that support it.  The Domestic Energy Promotion Act begins the process of transitioning and transforming incentives for ethanol to reflect a growing and evolving industry.

Specifically, the bill does three things seen as crucial elements in smart ethanol policy.  First, it transitions the current tax credit to a variable-style credit that would adjust in value based on the price of oil.  Such a transition provides both dramatic savings dictated by fiscal concerns as well as needed stability against a volatile oil market.

Second, the bill improves tax credit for gas stations to install ethanol refueling infrastructure such as blender pumps.  The bill would make up to 100 percent of the cost of the infrastructure eligible for a tax credit if the infrastructure was used to offer higher level ethanol blends.  Building out infrastructure for ethanol refueling and moving past the blend wall is a fundamental need if the evolution of this industry is to continue and the goals of the Renewable Fuels Standard are to be met.

Third, the bill extends vital tax incentives for advanced and cellulosic ethanol to accelerate the commercialization of such technologies.  Dozens of advanced ethanol projects are in the works.  This bill provides them with the stable policy environment needed to make investments and put steel in the ground.

Some have suggested this bill is a retreat by the ethanol industry in the face of loud, albeit unsubstantiated, opposition.  That could not be further from the truth.  This bill represents a good faith effort by ethanol advocates to address fiscal concerns while still allowing for growth and innovation in the industry.

Supporters of American ethanol production recognize doing nothing is not a solution.  Drilling for additional sources of oil may make sense, but any benefits that may accrue will take a decade to materialize.  Investments in ethanol production from a wide range of sources will yield a new, renewable fuel supply in half that time or less.

This is the second gasoline price shock this nation has endured in the past 5 years alone.  Instead of waxing nostalgic about energy technologies of the past, we should learn from recent history or be doomed to see it repeated.

The Domestic Energy Promotion and Security Act of 2011 is the kind of energy policy that moves the ball forward immediately.  It should serve as a model of responsible advocacy and policy for all energy sectors.