Ethanol compromise: a model for bipartisan problem solving

{mosads}Their basic approach: Cut tax credits for grain-based ethanol, while devoting two-thirds of the approximately $2 billion in savings to deficit reduction and the remaining one-third of the funds to the future of biofuels, including incentives for non-grain (cellulosic) biofuels, small ethanol producers, and the infrastructure needed to market and use alternative motor fuels.

This agreement recognizes that ethanol is evolving, and small startups as well as larger and more established companies are developing and producing the next generation of biofuels from feedstocks including plant and wood wastes, municipal garbage and algae.

By extending the tax credit for cellulosic biofuels through 2015 and extending the small ethanol producer tax credit through 2012, this compromise offers incentives for innovation, rather than walking away from America’s investments in the evolution of ethanol. By offering incentives for infrastructure, the agreement also encourages the installation of blender pumps, which allows the market for ethanol to grow and gives consumers the opportunity to choose the blend of ethanol that is right for them.  Remember, your car cannot distinguish between ethanol from corn or from switchgrass. Ethanol is ethanol.

As with any compromise, this agreement includes provisions that fall short of what some stakeholders would want. As a representative of the American biofuels industry, I’m concerned that capping the incentives for cellulosic ethanol development, as this agreement does, sends the wrong signal to the innovators and entrepreneurs who are taking the risks inherent in developing new technologies. I might also prefer a policy that recognizes the volatility of world oil markets and the power OPEC continues to hold over gasoline and biofuel markets.

But compromises always involve giving up something you want in return for a greater good. I’m proud that the U.S. ethanol industry and its advocates and allies have participated in the discussions that produced a commonsense compromise that balances the needs for debt reduction and the development of clean-burning American-made motor fuels.

In contrast, Big Oil has benefited from federal subsidies for the past 98 years, including $130 billion over the past 30 years, according to the Government Accountability Office. But the fossil fuels industries have yet to offer alternatives to fossilized tax advantages. In fact, American ethanol is the only sector that is voluntarily sacrificing some of its tax incentives to address budgetary concerns. We recognize that the status quo in American tax and energy policies just isn’t working any more, and we want to help America move forward.

For all the controversy about biofuels, some facts are clear: American ethanol is the only fuel available at scale that replaces imported oil. According to recent studies, ethanol replaced 445 million barrels of imported oil last year, reduced gasoline prices by $0.89 per gallon, and resulted in 48 to 59 percent declines in greenhouse gas emissions, compared to gasoline. Moreover, in the midst of near-double-digit unemployment, the industry supports some 400,000 jobs, contributes $53 billion to the Gross Domestic Product and pays $11 billion in federal and state taxes.

By incorporating the elements of this agreement into the eventual deficit reform package, the Congress and the Administration can continue to promote technological progress, energy security, environmental stability, and economic growth within the framework of fiscal responsibility. And the process that produced this agreement should serve as a model for how Americans can reach across our differences to address other urgent challenges.

Bob Dinneen is president and CEO of the Renewable Fuels Association, the trade association of the US ethanol industry.