VEETC-Volumetric Ethanol Excise Tax Credit, known as “blender’s credit”
The ethanol industry is not subsidized by the government. There is a tax incentive available for fuel marketers to include ethanol at their pumps, and that is called VEETC.
The bills, the Renewable Fuels Reinvestment Act (HR 4940) and the GREEN JOBS Act (S. 3231), would extend four key ethanol tax incentives through the year 2015, including the $0.45 per gallon blenders credit for ethanol use. All the groups encourage Senate leaders to include this legislation in upcoming discussions of an energy bill as outlined by Senate Majority Leader Harry Reid.
- President Bush signed VEETC into law in 2004 as part of H.R. 4520, the American Jobs Creation Act of 2004. The 2008 Farm Bill reduced the tax credit from 51 cents per gallon to 45 cents per gallon. VEETC provides a tax credit on each gallon of ethanol blended with gasoline to be paid within 20 days of blending gasoline with ethanol. This credit is given to fuel blenders.
- Under the requirements of the Renewable Fuels Standard (an amendment to a 2005 law passed in the Energy and Security Act of 2007), the nation must use 36 billion gallons of biofuels by the year 2022. By doing so, the bill seizes on the potential that renewable fuels offer to reduce foreign oil dependence and greenhouse gas emissions and provide meaningful economic opportunity across this country, putting America firmly on a path toward greater energy stability and sustainability.
Action Needed:
- Congress needs to pass an extension for the tax credit. The VEETC only provides a short-term provision for ethanol and sunsets at the end of 2010.
- The sale of ethanol helps the Ohio economy. Ohio produces over 400 million gallons of ethanol annually and Ohio motorists use over 500 million gallons of ethanol per year. Ethanol plants have helped rejuvenate rural communities across the country by creating high-paying jobs, boosting local tax revenues and creating partnership opportunities for local businesses.
- Additionally, ethanol helps the environment by reducing greenhouse gas emissions and displacing the harmful additive MTBE from reformulated gasoline.
What others are saying
The American Coalition for Ethanol, the National Corn The American Coalition for Ethanol, the American Farm Bureau Federation, the National Corn Growers Association, the National Sorghum Producers, and the Renewable Fuels Association today reaffirmed their support for two identical pieces of legislation that would extend current ethanol tax incentives through 2015. Current ethanol tax policies are working to build out the industry, expand infrastructure, and provide the foundation for new technologies to thrive.
"If Congress fails to extend ethanol tax incentives beyond 2010, more U.S. jobs will be lost and energy independence will be reversed, two dangerous consequences that America cannot afford,” said American Coalition for Ethanol Executive Vice President Brian Jennings. “ For years ACE has supported legislation to ensure more Flexible Fuel Vehicles and blender pumps are available to help overcome the E10 blend wall. Moreover, we have examined alternatives to VEETC, some which are appealing, and we have talked to policymakers about alternatives to VEETC. The universal response we have received from our champions on Capitol Hill is that while some of those alternatives are interesting, those alternatives cannot possibly be adopted at this stage in the legislative calendar, with just about 30 days remaining until Congress adjourns for the mid-term elections. Based on that congressional feedback and in consultation with other ag and ethanol groups, we have come to the conclusion we need to support the dozens of Members of Congress in both parties who are fighting to extend the current tax incentive as long as we can. At the same time, we will continue to fight aggressively in support of FFV and blender pump policies to help break through the blend wall.”
“Ethanol plays a vital role in America’s energy supply,” said Bob Stallman, president of the American Farm Bureau Federation. “It is a clean, high-octane fuel that is produced in America. These bills reaffirm longstanding congressional support for this domestic energy supply while at the same time helping to maintain a vital economic engine in many rural communities. We will work closely with members on both sides of the aisle to assure that provisions extending the Volumetic Ethanol Excise Tax Credit (VEETC) are incorporated in any measures considered by the Senate.”
“Our grassroots membership has made it clear that extension of the VEETC and support of our champions in the Congress is vital," said National Corn Growers Association President Darrin Ihnen, a corn grower in Hurley, S.D. "As our board and voting delegates visited with members of Congress this week it was apparent that time is short and extension is in the best interests of the corn industry.”
“Continuing these tax incentives will be critical to add much needed green jobs throughout the Sorghum Belt and rural America,” said Gerald Simonsen, National Sorghum Producers Chairman. “To abandon these credits at this point will have devastating effects on a young but growing ethanol industry.”
“There can be no question that the current tax policies to support the evolution of America’s ethanol industry have been successful,” said Renewable Fuels Association President Bob Dinneen. “Now is not the time to add uncertainty and complexity to the energy tax debate. Because the EPA has failed to act to allow higher level ethanol blends, margins in the industry are razor thin. Losing the tax incentive now will shutter plants and cost tens of thousands of jobs. This is a serious discussion with real world implications. Numerous ideas exists and due diligence must be done to ensure the right ideas are put together so as to foster the continued growth of this industry.”
What is going on with the ethanol industry in Ohio?
OCGA sees the ethanol industry as a critical part of our nation’s domestic energy security and an important market for corn growers. Ohio currently has four ethanol plants in operation: POET Biorefining Leipsic, Marion and Fostoria and the Andersons/Marathon in Greenville. Valero owns another ethanol plant in Bloomingburg.
Ohio plants, in 2009, generated nearly 300 million gallons of ethanol.
The Ohio Corn Growers Association works with ethanol groups such as the Ohio Ethanol Producers, Growth Energy, the Renewable Fuels Association and the American Coalition for Ethanol. Corn-based ethanol provides an important market for Ohio corn growers.
I’ve been hearing about increasing blends of ethanol in gasoline. Why do we need to do this?
First, OCGA supports higher blends of ethanol in the marketplace.
Moving to higher blends of ethanol is critical to the sustained health and expansion of corn and cellulosic ethanol production in the United States.
An incremental move to higher blends of ethanol would send a strong signal that the ethanol industry remains a major component of the nation’s energy policy, at a time when the United States is working to replace foreign oil with domestically produced renewable energy.
Corn growers nationwide and the ethanol groups are working to get more of the renewable fuel in the marketplace through various means outlined below.
What are Blender Pumps?
With volatile energy costs affecting all Americans, offering flex-fuel vehicle (FFV) owners more choices at the fuel pump makes sense. FFVs are vehicles manufactured to operate on gasoline and up to 85% ethanol (E85), or any mixture of the two, such as mid-level ethanol fuel blends. One way to accomplish this goal is for retail fuel station owners to purchase and install a multi-product fuel dispenser, commonly referred to as a “blender pump.” Blender pumps utilize existing fuels available at the station to offer additional fuel blends directly from the dispenser. New fuel blends such as E20, E30, and E40, offer consumers ethanol blended fuels between 10% and 85% ethanol.
In August 2009, the RFA, together with the American Coalition for Ethanol, the National Corn Growers Association and several leading corn-producing states, launched the "Blend Your Own Ethanol" campaign to offer a single source of ethanol information and technical expertise for petroleum marketers looking to upgrade equipment or begin offering more choices to their customers. By serving as a central clearinghouse for renewable fuels infrastructure incentives, the “BYOethanol” campaign will bring blender pumps to key areas of the country, and from there they will spread as neighboring gas stations see the benefit and want to remain competitive.
Introduction of new fuel blends is expected as the marketplace incorporates additional biofuel volumes. Mid-level ethanol blended fuels - fuels containing above 10% and below the 70% minimum ethanol content allowed in E85 fuels - are being developed. These fuel blends are described as “E XX,” where the letter E stands for “ethanol volume percent” and the “XX” indicates the minimum ethanol content contained in the blend, with the balance of the fuel being unleaded gasoline. Today, these mid-level ethanol blends are restricted for use in FFVs.
What the ethanol industry is up against:
Ignoring numerous examples of violations of California law by the Air Resources Board (ARB), the state’s Office of Administrative Law (OAL) recently approved the Low Carbon Fuels Standard (LCFS) for implementation.
“Pursuing this strategy runs counter to the stated goals of Governor Schwarzenegger and the State Assembly to reduce carbon emissions from motor vehicles,” said Renewable Fuels Association President Bob Dinneen. “As crafted, the LCFS would virtually eliminate domestic ethanol,the only viable low-carbon alternative to gasoline, from the California marketplace in favor of imported ethanol and futuristic fuel technologies such as hydrogen and the electric car.”
Dinneen continued, “While serious and substantial concerns remain about the methodology and motives of ARB staff in drafting this standard, ARB failed to fulfill its statutory obligations under California law. In more than one instance, ARB staff failed to fully and appropriately address the valid concerns and comments provided by stakeholders, including the RFA. These failures are in direct violation of California statute and should have prompted OAL to reject the standard.”
In December, the RFA sent a letter to OAL detailing the numerous failures of ARB to appropriately address a number of concerns dealing with the assumptions, modeling and methodology ARB staff employed in drafting the standard.
“OAL’s decision has left the industry no choice but to continue pursuing legal action to prevent this punitive, unfair, and unconstitutional standard from moving forward,” said Dinneen.
On December 24, 2009, the RFA, Growth Energy, and others filed suit in federal district court in Fresno, California, challenging the LCFS on the grounds it violates both the Supremacy and Commerce Clause of the U.S. Constitution.
The California board has based their decision on incorrect modeling of Indirect Land Use Change, which is explained at the top of the page.
Why do California laws on biofuels matter in Ohio?
In the January 2007 State of the State, Governor Schwarzenegger asserted California's leadership in clean energy and environmental policy by establishing a Low-Carbon Fuel Standard (LCFS) by Executive Order. This first-in-the-world greenhouse gas (GHG) standard for transportation fuels will spark research in alternatives to oil and reduce GHG emissions.
An Initial Statement of Reasons (ISOR) was published on March 5 and a public hearing was held on April 23. At this hearing, CARB’s Board voted to accept the LCFS, as drafted, by a vote of 9-1. The Standard takes effect in 2011.
Corn-based ethanol from natural gas-fired Midwestern ethanol plants can only meet the levels of compliance in 2011-2012, and are currently mandated out of a 1 billion gallon per year market after that date. This new standard will hurt the domestic biofuels and related industries and increase our nation’s reliance on foreign oil.
The LCFS includes an assessment of greenhouse gas emission (GHG) performance for fuels including significant emissions from land use changes (LUC). Life Cycle Analysis (LCA) includes direct emissions associated with producing, transporting, and using the fuel, including:
- Emissions from planting, harvest (fuel, fertilizer)
- Emissions from feedstock transportation
- Emissions from conversion of crop to biofuels
- Emissions from transporting biofuels to end user
Unfortunately, LUC penalties are enforced against biofuels only, which increases the carbon score of these fuels by 40 percent or more. The problem with the proposal as approved is twofold:
-the science of predicting indirect, economically-derived carbon effects is extremely new and uncertain; and,
- no level of certainty justifies enforcing economically-derived carbon effects against only one type of fuel.
California board members ignored important estimates of corn yield growth trends as they only updated yield from 2001 through a 2006-2008 average yield. This is highly inconsistent with the years of their analysis, which range from 2001 to 2015.
What is the Higher Blends Waiver?
The industry has requested a Higher Blends Waiver. On March 6, Growth Energy (an ethanol producers’ group) and 54 ethanol manufacturers submitted a waiver application to the U.S. Environmental Protection Agency (EPA) requesting approval to increase the amount of ethanol blended with gasoline up to 15 percent. Current statute calls for EPA to make a decision within 270 days of receipt, which is December 1.
The ethanol industry is in danger of hitting full market penetration that will hinder the commercialization of cellulosic ethanol and jeopardize meeting the Renewable Fuel Standard (see II. Renewable Fuel Standard).
Since current government regulations restrict the ethanol blend to E-10, the country will hit a “blend wall” and will not be able to use a volume of ethanol greater than 10 percent of our fuel supply. Ethanol producers expect to hit that wall this year based on current supply projections. Adoption of higher, intermediate blends of ethanol in gasoline will enable the industry to “scale” the blend wall and provide numerous benefits to the U.S., including reducing our nation’s dependence on foreign oil, creating jobs and growing the economy, and helping to improve the environment.
Significant research exists on the ability of cars to use such intermediate blends with little to no impact on car performance or emissions. Today’s vehicles are designed to run on gasoline blended with small amounts of ethanol. Currently, the U.S. Environmental Protection Agency (EPA) caps the amount of ethanol that can be blended into gasoline at 10 percent, commonly referred to as “E-10.”
The 10 percent cap is an arbitrary number that dates back to 1978 when the EPA granted a waiver for the use of this fuel blend as substantially similar to gasoline.
While higher blends such as E-85 play a role in our renewable fuel supply, limited numbers of flex-fuel vehicles and lack of necessary infrastructure will continue to limit its impact in the near-term. In order for intermediate blends to be used in all cars on the road today, a waiver must be issued by the EPA or granted by Congress.
Background into the Renewable Fuel Standard and how it’s changing:
The Energy Independence and Security Act of 2007 (EISA), known as the Energy Bill, established a 36 billion gallon revised Renewable Fuel Standard (RFS2), headlining several important provisions for biofuels.
The RFS2 contains different provisions for assorted types of biofuels, including:
- Conventional biofuels (made from corn and soy)
- Advanced biofuels (high-energy liquid transportation fuels derived from agricultural or forestry waste; or other sustainable biomass feedstocks including algae)
- Cellulosic biofuels (produced from wood, grasses, or the non-edible parts of plants)
-Biomass-based diesel (biodiesel or renewable diesel)
The new law set the following volume targets for each of these biofuel types, from 2008 to 2022.
On May 5, the EPA released the much-anticipated Notice of Proposed Rulemaking (NOPR) amending the RFS2. According to the EPA it’s the first time all of the above fuels have been looked into to qualify for the new law:
A. “(f)or the first time in a regulatory program, an assessment of greenhouse gas emission (GHG) performance is being utilized to establish those fuels that qualify for the above four different renewable fuel standards. As mandated by the revised statutory requirements, the greenhouse gas emission assessments must evaluate the full lifecycle emission impacts of fuel production including both direct and indirect emissions, including significant emissions from land use changes.”
As proposed, the NOPR concludes that corn-based ethanol reduces direct greenhouse gas, or GHG, emissions by more than 60 percent compared to gasoline.
The EPA has attempted to calculate domestic and international indirect emissions resulting from the undeveloped science of land use change, which are thought to greatly reduce ethanol’s GHG benefit.
Indirect land use has become a highly controversial issue since the publication of a 2008 paper in Science magazine. Many groups are involved in developing mathematical models that are beyond the scope of this summary, but demonstrate the difficulty with validating mathematical models on the effects hypothetical changes of indirect land effects from international agriculture on domestic production in the United States.
Many different studies can come to very different conclusions, depending on who is doing the studies.
The EPA will subject land use change and these calculations to further peer review and public comment. OCGA and NCGA will also work with the industry to provide EPA the most up-to-date scientific information available on corn yields, crop inputs, and distiller’s grains, and other needed information.
Questions?
Feel free to contact us at anytime. We are located at 59 Greif Parkway, Delaware, OH 43015.
Phone: 740-201-8088.
E-mail:
Executive Director Dwayne Siekman: dsiekman@ohiocorn.org
Director of Government and Industry Affairs Tadd Nicholson: tnicholson@ohiocorn.org
Director of Communications Natalie Lehner: nlehner@ohiocorn.org
About Ohio Corn Growers Association
The Ohio Corn Growers Association represents the interests of more than 20,000 corn growers in the state. OCGA works in Washington and at the Ohio Statehouse to ensure government participation in legislation is beneficial to Ohio's growers. Farmers provide food, feed and fuel to power Ohio. For more information, go to http://www.ohiocorn.org.
