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ETHANOL SUBSIDY EXPIRES LEAVING UNCERTAINTY AT THE PUMP

Published: Tue. Dec 27th, 2011

FOR IMMEDIATE RELEASE                             CONTACT: Tricia Braid

                                                                    (309) 827-0912, (309) 830-3393

 

BLOOMINGTON, Ill. — When the sun sets on 2011, so will it set on the ethanol tax credit, leaving hundreds of millions of Americans in the dark when it comes to how much it will cost to “fill’er up” in 2012.

“It might cost you more to fill up with gas as early as New Years Day,” said Jeff Scates, Illinois Corn Growers Association President. “If all other variables stay the same, gas prices should be higher since the tax credit oil companies have received to blend ethanol with their petroleum won’t be available.”

The Volumetric Ethanol Excise Tax Credit (VEETC), often dubbed a subsidy by ethanol critics, will expire on December 31, 2011. The majority of the VEETC credit profited oil companies who added ethanol to their gasoline, not corn farmers or ethanol plants.

Corn farmers and the ethanol industry supported VEETC’s expiration as a way to help reduce the federal deficit and make a small step toward balancing the federal budget. Unfortunately, oil companies didn’t follow suit and offer up their own century-old petroleum subsidies as a budget-saving measure.

VEETC should have benefited consumers at the pump by way of lower per gallon gas prices. As an example, at some stations, mid-grade fuel may have been a few cents cheaper than the low-grade fuel because the gasoline blender passed along a portion of the tax credit to consumers to offer a price advantage.

It has become increasingly apparent that in the case of the some gas stations, more and more often the additional profit margin that the VEETC provided ended up lining big oil’s corporate pocketbook rather than being passed along to consumers.

“Remember that for the last four years, ethanol has been less expensive than gasoline so when oil companies use ethanol they’re already making a gallon of gas cheaper to produce. The VEETC was worth about 4.4 cents per gallon at the 10 percent blend. That’s the price advantage that’s lost starting on January first,” Scates added. “It’s not the ethanol that might make gas prices go up, it’s the loss of the VEETC.”

“Without the VEETC, there’s really no realistic expectation that gasoline retailers will continue offering the lower prices on the grades of fuel that contain more ethanol. And since nearly every gallon of gas sold in this country is at least a 10 percent ethanol blend, it is logical to expect that fuel prices across the board should bump up,” Scates explained.

Tax credits for ethanol have been in place since 1979 to encourage the growth of the country’s ethanol industry with the goal of reducing our dependence on foreign oil while reducing harmful emissions. It was understood that as the industry matured and could compete against oil, the tax credit would expire.

Ethanol tax credits also served to “level the playing field” with oil companies. Petroleum based fuels have been subsidized for nearly a hundred years and according to a DTN study, now top  the $280 billion mark annually.

The VEETC has recently been criticized by oil companies, food companies, environmental interests, and livestock interests as a fleecing of America. Their arguments ran the gamut, accusing VEETC for causing higher food prices, reducing government revenue, and more.

Despite the rhetoric, economic analysis has debunked these public relations myths. These naysayers led the charge to end the VEETC early, claiming consumer benefit as their top reason.

“What these critics didn’t tell consumers is that they can expect real and significant fuel price increases with the expiration of VEETC,” Scates added. “It’s unfortunate that in their zeal to fatten up their own pockets by claiming consumer benefits, the VEETC critics didn’t come clean about what every American could be facing at the pump.”

“As corn farmers, we studied this situation and understood that higher gas prices could be a consequence of ending the VEETC. We made that situation quite clear to Congress. But upon reflecting on the purpose of the tax credit as it was initiated, and taking into consideration the condition of our federal budget, we knew that the time had come to let VEETC expire,” Scates said.

“The bottom line is this. We should anticipate additional uncertainty when it comes to gas prices in 2012, and that’s not because of ethanol,” Scates added. “But I wouldn’t anticipate ethanol’s critics to line up and take credit for it, no matter how well deserved that credit may be.”

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