Congress ponders corn ethanol tax credit as production of plant waste ethanol lags

Introduction

A 2007 federal law envisioned a bright future for cellulosic ethanol, an environment-friendly fuel made of wood chips, switch grass, corn stalks, and other plant waste. The Energy Security and Independence Act set an ambitious goal: At least 250 million gallons of cellulosic ethanol would be produced annually by 2011.

Things haven’t gone according to plan.

The Environmental Protection Agency projected this week that production would reach a mere 6.6 million gallons next year — less than 3 percent of the goal established by Congress. “Overall,” the agency said in a news release, “EPA remains optimistic that the commercial availability of cellulosic biofuel will continue to grow in the years ahead.”

Others aren’t so sure. As the lame-duck Congress considers whether to extend tax credits for corn ethanol — the most prevalent and heavily subsidized type of biofuel — some say it’s time to rethink federal energy policy.

The 45-cent-per-gallon tax credit for blenders who add corn ethanol to gasoline expires Dec. 31 and amounts to an annual “$6 billion giveaway to the oil companies,” said Jeremy Martin, a senior scientist with the Union of Concerned Scientists.

The EPA’s Renewable Fuel Standard already mandates that nearly 12 billion gallons of corn ethanol be produced this year, and that target will be hit, making the tax credit redundant, said Sheila Korth, a legislative and policy analyst with the Environmental Working Group. The Government Accountability Office agreed in a 2009 report. “Because the [mandate] would ensure that the same amount of ethanol was used by blenders with or without the [tax credit],” the GAO said, “we and others have found that removing the [credit] would not adversely affect the demand for corn for ethanol and the income of corn producers …”

All told, the federal government lost about $17 billion in revenue from 2005-09 as a result of the corn ethanol tax credit, according to Korth. And the production of corn ethanol has major environmental impacts, notably the clearing of vast swaths of land for corn-growing and water pollution from pesticides and fertilizers, the Environmental Working Group says.

Nonetheless, farm-state supporters of corn ethanol, among them Republican Sen. Charles Grassley of Iowa, can be expected to vigorously defend the subsidy.

“Allowing the provisions to expire or remain expired would threaten jobs, harm the environment, weaken our renewable fuel industries, and increase our dependence on foreign oil,” Grassley and 14 other senators said in a letter today to Senate Majority Leader Harry Reid and Republican Leader Mitch McConnell.

Matt Hartwig, a spokesman for the Renewable Fuels Association, an ethanol industry group, said that the expiration of the tax credit could result in a 30 percent drop in corn ethanol production and the loss of some 110,000 jobs.

Corn ethanol is “the only viable alternative to gasoline that we have today,” Hartwig said, adding that “the investment we make in ethanol is really pennies when you compare it to the subsidies that the petroleum industry receives.” Corn ethanol is also less damaging to the planet than oil and gas drilling, Hartwig said. “It all has to be taken in context,” he said. “It’s a better option than oil.”

Producers and blenders of cellulosic ethanol receive tax credits totaling $1.01 per gallon. These don’t expire until Dec. 31, 2012. But there’s little evidence that the credits have had an effect.

There are still no commercial producers of cellulosic ethanol, and Hartwig blames the industry’s plodding start on the deep economic recession and the lack of federal incentives. According to a recent report by the Congressional Research Service, 10 plants that ultimately will use corn cobs, wood chips and other waste materials to make fuel have received $422 million in research-and-development funding and loan guarantees from the Department of Energy and the Department of Agriculture.

But the EPA’s low 2011 production target for cellulosic ethanol under the Renewable Fuel Standard “sends a chilling message,” Hartwig said. The nascent industry, he said, needs a bigger boost: “Access to capital is the chief hindrance to the development of the industry, because you’re talking about essentially new technologies.”

Martin, of the Union of Concerned Scientists, said it’s time for Congress to shift its emphasis from corn ethanol to cellulosic. He and other experts believe that a government investment of $4 billion over the next four to five years would give producers the jump-start they need to make the nation’s first billion gallons of cellulosic ethanol.