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Congress Extends Ethanol Tariff to 2009

11 December 2006

Both houses of the US Congress voted on Friday to extend the 54-cent-per-gallon tariff on imported ethanol through January 1, 2009. The ethanol tariff was scheduled to expire in October 2007. The legislation now goes to President Bush for his signature.

South Dakota Senator John Thune (R), who has championed the tariff, says that it promotes domestic ethanol production and guarantees a greater market to corn growers.

Last year Congress passed a Renewable Fuels Standard as part of the Energy package requiring the use of 7.5 billion gallons of renewable fuels by 2012. Currently, there are 109 ethanol facilities nationwide that produce 5.2 billion gallons of ethanol with 53 additional plants under construction and seven that are expanding.

Earlier in the week, the Federal Trade Commission (FTC) reported that the concentration of providers in the US ethanol market has decreased from last year’s low levels due to the growing number of firms entering the ethanol market.

According to the FTC, 90 different firms were operating ethanol biorefineries by mid-October 2006. That is an increase of 15 firms from a year ago. The FTC goes on to estimate that 110 firms will be operating facilities by the end of 2007.

The report also notes that ethanol production is exceeding minimum mandated levels, and likely competes with other blending components (i.e. iso-octane, alkylate) at those production levels.

The highly competitive nature of the US ethanol market is evident by the growing number of new producers joining the industry. Ethanol production in the US is offering Americans from all walks of life the opportunity to invest in our energy future. To meet the growing demand for ethanol, the continued expansion of the industry, with the entry of new producers in new areas of the country into the market, will be essential.

—Renewable Fuels Association President Bob Dinneen

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December 11, 2006 in Ethanol, Policy | Permalink | Comments (15) | TrackBack (0)

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"The highly competitive nature of the US ethanol market is evident by the growing number of new producers joining the industry."
If it was truly competitive, we wouldn't have to retain such a steep tariff on ethanol imports.

It's a tough position.

On the one hand, reducing/eliminating the tariff would result in more imported ethanol. Would it increase supply? Probably -- the increased supply would likely overcome the domestic reduction in production due to a lack of profitability.

So, in the short term, we'd get more ethanol.


But, if the long term goal is to secure enough ethanol production to make a substantial reduction to the amount of fuel imported from non-North American countries, then we've got to figure out how to generate more ethanol at home -- and giving temporary protection to the domestic industry might be necessary and sufficient to getting that domestic production up.

I'd have liked to see the tariff reduced slightly. Drop it from 54 cents to 50 cents. Send the message that tUS will protect the domestic industry, but it fully expects that the industry move quickly to ramp up production while reducing costs. Heck, legislate a drop in the tax by 4 cents per year until it gets to 0. You could even make it revenue neutral by mandating that the total dollar amount in tax is made up for in oil imports. Since the number of gallons of imported oil is soooo much higher than ethanol, we're talking about a small fraction of a cent per gallon -- almost negligible.

Since we make ethanol from corn and Brazil makes it from sugarcane, they have an advantage. We problably can not go beyond E5 with corn, so we would have to go to cellulose or biomass gasification. It seems like they are trying to get these industries started with subsidies and tariffs. This is usually the case, but it is not exactly free market. In that market the most efficient producer would win.

If the ethanol tariff were dropped, US farmers would have to compete primarily with the sugarcane barons in sunny Brazil. Other tropical countries would also resort to clear-cutting to cash in on the boom while it lasts.

The extension of the tariff just proves that nothing last longer than a temporary fix. It makes farm state politicians more popular and they can collect more campaign contributions from the industries they are sheltering. In the long run, the consumer always loses when competition is undermined.

A more palatable approach would be to negotiate phased multilateral reductions in all farm aid in the developed world, in return for opening the market to those who meet negotiated sustainability standards.The world trading systems currently places zero value on biodiversity, carbon sinks etc.

But, if the long term goal is to secure enough ethanol production to make a substantial reduction to the amount of fuel imported from non-North American countries, then we've got to figure out how to generate more ethanol at home -- and giving temporary protection to the domestic industry might be necessary and sufficient to getting that domestic production up.
stomv,
You must be joking! There is no way ethanol is going to make a dent in oil imports, it is just to small of an industry. In 2005, the US used 14% of its corn harvest to produce enough ethanol (remember less energy/gal than oil) to replace ~1% of its daily oil use (~20 million bbl/d and counting).

You do the math: To the agricultural industry this is big business. And that 14% will increase substantially over the next few years.

To the oil industry this is one big non-event. If you used 100% of the corn harvest, you could only replace 7% of the imported oil! And you'd have to import a ton of corn to feed the nation. Food security anyone?

This is loose-loose farm politics. Scrath the tariffs. It would be good for everybody. And no, Rafael, I don't think clear cutting and growing ethanol goes hand in hand. I also doubt that producing ethanol, even from sugarcane is that profitable.

But don't take my word for it: Fasten your seatbelts. Watch what happens as we ramp up our ethanol production "to infinity and beyond". Watch how this is going to push up corn prices (already up 47% this year). Then watch how ethanol prices itself out of the market (why by ethanol if it is more expensive than gasoline, but gives fewer m.p.g?) Then watch all these new ethanol plants go bust...

Of course, some things never change. The above scenario will be followed by agricultural corporations begging for (and getting) increase subsidies from the federal government, sponsored by working Americans everywhere. Big Oil will, of course, be blamed for everything.

I would not say that ethanol of any kind could replace all the oil. But if we can tell OPEC to keep the oil, we negotiate from a position of strength. If they know we have no substitute, we have no choice.

"There is no way ethanol is going to make a dent in oil imports"

I love it when people try to hammer home the point about corn-based ethanol not being able meet our transportation needs....over....and over....and over...well, you get the point.

Are you trying to strike up an argument with yourself? EVERYONE who uses this site completely understands this. You aren't making any new, profound points here.

Do you know how close we are to making cellulosic ethanol profitable? Very. That will make an impact. In the meantime, we need to promote ethanol's supply and demand using existing techniques so that the market does not dry out.

This is one take on what it will take to wean us off oil imports:
_100-150 BTL plants over 10-15 years.
_~1.8 billion tons dry biomass/year, ~65% from waste, ~35% from crops/anti-fire forest thinning.
_Capable leadership.
_Comprehensive-but not onerous-reviews/oversight/controls to ensure proper expenditure of funds and to target waste/fraud.
_R&D for xTL process to increase efficiency/productivity.
_$400-$900 billion (FY2006) total, double if to replace all oil consumption.
_A floor/ceiling price for energy, to nurture renewables/new technology.
_Any net taxes resulting from to fund project, partial rebates for the poor, and widespread efficiency enhancements.
_Leverage scale of economy and engage private industry, to ensure a smooth process as possible, to avoid crippling high prices and shortages-steel/metals, concrete, equipment, skilled labor, etc.

If the perpuse behind the tariff is to protect and incurrage ethanol production I think it should be price sensitive. In other words set a maximum protected whosale price and phase out the tarrif as it exceeds it.
This will protect the bottem line from overly aggresive forien markets and from over expanding capacity.


I hate to mention it, but the original reason for that tax was to discourage alcohol consumption. It was imposed at the end of prohibition and has nothing to do with motor fuels. If it had kept up with inflation, it would be around ten dollars today.

Are you trying to strike up an argument with yourself? EVERYONE who uses this site completely understands this. You aren't making any new, profound points here.
EVERYONE? You could have fooled me!

Do you know how close we are to making cellulosic ethanol profitable? Very. That will make an impact. In the meantime, we need to promote ethanol's supply and demand using existing techniques so that the market does not dry out.
Perhaps you have trouble reading. As I said: Fasten your seatbelts. Watch what happens as we ramp up our ethanol production "to infinity and beyond". Watch how this is going to push up corn prices (already up 47% this year). Then watch how ethanol prices itself out of the market (why by ethanol if it is more expensive than gasoline, but gives fewer m.p.g?) Then watch all these new ethanol plants go bust... In other words, there is a bust coming, and the current tariff won't change that.

We are VERY close to cellulosic ethanol? Perhaps. Better to wait for the first cellulosic ethanol plant to start churning it out, before you make that call. Time will tell, right now, nobody knows.

My other point obviously has not stuck yet, so here we go again: What makes ethanol so special? Right now, incorporating ethanol into the existing supply of gasoline is a pain in the neck:
1. It cannot be pumped with gasoline due to corrosion issues: Ethanol absorbs water.
2. Ethanol-gasoline mixtures have higher vapor pressures than either ethanol or gasoline. This translates to more emissions and evaporative losses.
3. Ethanol fermentation is inevitably low yield: the fermenters can only grow on a part of the available substrate. You could believe that there is a market for the byproducts, but I would caution against it. Hint: The byproducts are already getting exported. Is the local demand saturated?
4. Separating the ethanol from the broth requires a lot of energy, making overall efficiency lower.

Perhaps a more sensible approach would be to fine tune an existing technology (such as gasification/Fischer-Tropsch) that can use 100% of the feedstock, and yields identical fuels to what we are currently using, hence eliminating all blending issues.

But hey, don't take my word for it. Why not waste 20+ years and $trillions (your tax dollars @ work) and wait for reality to catch up with ethanol?

How ironic. Brazil is our most important ally in South America. Chavez is our biggest problem. We have a much higher tariff on sugar cane from Brazil than oil from Chavez. There is more than enough demand for ethanol to use both corn and sugar cane to wean us off oil. And, we could help an important ally. However, the politicians don't have the courage to explain this to the corn lobby, and thus we extend the tariff.

For all the erudite points you all are making, you're missing a very important consideration. Brazil at the end of this year will be the only energy independent country on the planet. Why? Because they have incorporated and perfected ethanol usage on a national scale over decades. Clearly, ethanol has merit as an alternative to fossil fuel despite all the science you discuss. Sometimes science and speculation are not predictive enough to determine the effects of a mass movement in the right direction.

The United States continues to cripple itself by not allowing any market it's involved in to be truly free-- which immeasurably dimishes our credibility abroad, and where it doesn't it should. Further, for a capitalist, free-market proponent to inhibit foreign markets from benefitting economically when they're generating products, processes, technologies or natural resources more effectively than we are is simply hypocritical short-sighted and wrong.

Total energy independence aside, ethanol does reduce our oil consumption. Brazil can produce ethanol so much cheaper than we can that they can ship it to us and be more than competitive. We cannot go about the world shouting free market trade and continue to put up tarrifs against the very products we need most.

Our corn producers are essenially all major corporations. We are not hurting the family farmer. What we are doing is driving up the price of beef, chickens and eggs; all major consumers of corn. Should I mention the rise in tortilla prices in Mexico. We have gone from a grain exporter to a country unable to meet its own needs and we are only feeding corporate giants. The time for presidential leadership was this week when he could have come out and said that while our tarrif was just extended to 2009 he would immediately come home and ask congress to repeal that portion of the 2006 statute.

You all don't get it. MTBE's are bad. You are already using E10. MTBE has been replaced with Ethanol. That alone has outpaced the US Ethanol production. Farmers can produce corn on demand. Every time the world has demanded more corn, the US farmer has stepped up and produced, in surplus, over the US demand.

You talk about cellulosic ethanol like it is something great but is what you don't realize is the logistics of transporting, storing and preserving them would be cost prohibitive.

A gallon of ethanol has approximately 77,000 btu's. A gallon of gasoline has 114,000 btu's and let's not forget about biobutanol at 110,000 btu's.

You also try to say that the energy required to produce a gallon of corn ethanol uses more envergy than the ethanol holds. Have you calculated in your figures that most all of the farm machinery and trucks used run on soydiesel?

The Germans used biobutanol in WWII. It is created using very similar processes as ethanol. It contains 110,000 btu's per gallon, does not attract water (ethanol's downfall for pumping through a pipeline), requires NO modification to your current vehicle (another downfall of ethanol) and is non-corrosive.

From my calculations, if you could take the projected 92M acres of corn planted in 2007, make ethanol out of every kernel at the industry standard of 2.6 gal. of ethanol per bushel of corn, we could produce (using the US estimate of 125 bushels of corn per acre) 29,900,000,000 gallons of ethanol which only a handful of cars could utilize if it was all E85. At the same time, we would not be able to feed the world but we could have enough ethanol to get all those Surburbans to soccer games. Maybe if we stopped trying to prevent ethanol production and embraced the idea of using our own renewable resources produced by our own people to build our own economy and put all the money that you city folk are using to protest it, we wouldn't have the depression, sub-standard living and poverty throughout the Midwest so that your tax dollars do not have to support us through other means. It is a vicious cycle.

Don’t bite the hand that feeds you. (And now is powering your BMW)

BTW, I am writing this on a Gateway 2000 computer running a 486 processor, 40 MB hard drive, 32 MB RAM and Windows 95 on a dialup connection because I cannot afford even a Pentium 4 let alone high-speed internet (which is only available via satellite since any phone company will not invest in the infrastructure so that I could have the choice between DSL, Cable or Wireless). All our companies have left town, even Gateway. Our only hope is our local ethanol plant can keep the local economy going. You have 500 channels on satellite, I have 4 on over-the-air broadcast. Hope you like Public TV.

Just a Midwesterners view. Thanks for reading.

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