POET: U.S. ethanol can survive without VEETC

by World Grain Staff
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SIOUX FALLS, SOUTH DAKOTA, U.S. — The U.S. ethanol industry has matured enough that it can survive without the tax credit set to expire at the end of this year, said POET Chief Executive Officer Jeff Broin during a conference call on Dec. 6.

The Volumetric Ethanol Excise Tax Credit (VEETC), which is 45¢ per gallon, was enacted in 2004 as part of the American Jobs Creation Act. The goal of the tax credit was to launch a sustainable industry, and that has happened, Broin said.

“The tax credit was not designed to last forever,” he said.

With the exception of a few short periods, ethanol has been priced below gasoline since 2008, Broin said. Overall, expiration of the tax credit will not impact plant profitability, he said.

Broin said ethanol will not see the severe drop in production experienced by the U.S. biodiesel industry when its tax credit expired in 2010. There is a significant difference between the cost of biodiesel and ethanol production.

“The economies of our industries are very different,” Broin said. “Over the last three years, the consumer has received the tax credit; the ethanol plants have received none of it. That’s proof that plants can survive without it.”

As for the secondary 54¢ tariff, which was created so foreign ethanol wouldn’t benefit from VEETC, Broin said parity is critical.

“We’re not concerned about competing with other countries, except where they have a tariff as well,” he said. “Brazil has temporarily suspended their tax credit, but there could be a time in the future where we would be at a disadvantage. We support tariffs that equalize our country with other countries that have tariffs.”

Ending of the tax credit will mark a transition for the U.S. ethanol industry that has been taking place over the last several years, Broin said. The time should be used to evaluate the role government plays, and ensure policies such as the Renewable Fuels Standard (RFS) remain in place.

Investment is needed in cellulosic ethanol if that industry is to reach its 80 billion gallon potential, Broin said. In particular, the cellulose ethanol tax credit must be extended beyond 2012.

“The tax credit is going to be important in the first years of operation,” he said. “I’m confident we will see it extended, possibly at a decreasing level.”

Higher fuel blends are needed as well as more investment in flex fuel infrastructure, he said.

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