Senate proposes $1.01 per gallon ethanol tax credit; ethanol tariff 50/50 chance of expiring this year, analyst projects

April 29, 2008

A report from Raymond James analyst Pavel Molchanov said that “the reduction in the [ethanol] tax credit is not likely to have a direct impact on ethanol producer margins, if only because the economics of the credit are currently being captured in their entirety by the blenders.”

The Senate has proposed that the cellulosic ethanol tax credit be set at $1.01 per gallon, expiring in 2012. Commenting on the impact of the food-vs-fuel debate, Molchanov said ” The reduction in the tax credit for corn ethanol has been discussed in Washington before, and we do not view this decision as a direct response to the recent global food price escalation.

However, as we argued in our April 16 industry brief titled “Ethanol & Biodiesel Update: Wave of Food Price Concerns May Spur Policy Responses,” it is possible that the changing political landscape surrounding biofuels may result in this credit sunsetting altogether in 2010. The prospects of its extension will depend in part, on the trend of corn prices between now and then. More near term, at year-end 2008, the $0.54/gal ethanol tariff will expire unless extended. As we noted on April 16, we believe that there is now at least a 50% chance that the tariff will in fact, be allowed to expire.”

The tax credit will be part of the finalized Farm Bill.The bill contains $900 million for biofuels development, $900 million for nutrition programs aimed to offset higher food prices, while land stewardship programs would received an additional $4 billion, and specialized crops $1.35 billion.

Earlier this month, the US House of Representatives had voted to extend the existing Farm Bill until April 25 to give lawmakers more time to resolve differences between the House and Senate versions of the new Farm Bill, which includes tax breaks and incentives for biofuels. The current law expires on April 18. President Bush has stated that he will not sign legislation extending the current Farm Bill for another year.

The Farm Bill was passed by the Senate in in the fall, while the House version passed in July. Senate Agriculture Committee chairman Tom Harkin said the bill would earmark $1.3 billion for biofuels over the next five years.

The Senate passed an overall funding measure on October 5, but the Agriculture Committee under committee chairman Tom Harkin had been working on specific program allocations until November, which include ethanol tax credits and next-generation biofuel investments. The Senate finance committee previously proposed cutting the ethanol tax credit to 46 cents per gallon.

President Bush has raised the threat of a Farm Bill veto, the first since 1956, over subsidies. Among those in hot dispute is the Brazilian ethanol tariff, which protects US ethanol producers but creates higher prices in the US and retards US ethanol demand growth.

Iowa Senator leads effort to close loophole circumventing Brazilian ethanol tariff

In Washington, Sen. Chuck Grassley is leading an effort to close a loophole allowing oil companies to circumvent the tariff on Brazilian ethanol. The loophole allows oil companies to receive a rebate ...

Sen. Domenici proposes Farm Bill amendment with 15 bilion gallon ethanol mandate for 2015

Senator Pete Domenici (R- New Mexico) proposed an amendment to the 2007 Farm Bill mandating 15 billion gallons of ethanol usage by 2015. The Senator, the ranking Republican on the Energy Committee, sa...

Senate Agricultural Committee approves $280 billion Farm Bill

In Washington, the Senate Agriculture Committee on Thursday approved its version of the five-year, $280 billion farm bill. The bill earmarks $1.3 billion for biofuels over the next five years, and ...

Today in Biofuels: $1.01 US tax credit for cellulosic ethanol proposed in Senate; Florida moves to E10; Brazil’s Brenco to raise $3.2 billion in IPO

Top Story:A report from Raymond James analyst Pavel Molchanov said that "the reduction in the [ethanol] tax credit is not likely to have a direct impact on ethanol producer margins, if only because th...

Farm Bill conference committee expected to vote this week; biodiesel tax break gone; ethanol tariff extended to 2010

In Washington, a vote by the US House and Senate conference committee on the Farm Bill is expected this week, with an expectation that the bill will contain a reduced 45 cents per gallon ethanol subsi...

Ethanol tax credit to drop to 45 cents per gallon in Farm Bill compromise

In Washington, the tax credit for ethanol is ready to drop from 51 cents per gallon to 45 cents and a special tax credit will be developed for second-generation biofuels, after a compromise was reache...

Written by Jim Lane · Filed Under News & Financial Analysis, Policy, Stock & Financial Outlook, The Daily Biofuel Summary