Ethanol Production's Future Outlined

July 11, 2001

Renewable Fuels Association (RFA) Vice President Bob Dinneen Tuesday detailed the success of the federal ethanol program and outlined three recommendations to increase the production and use of ethanol in the future. He testified before a Senate Finance Committee hearing on the role of tax incentives in energy policy,

"The federal ethanol program has been an unmitigated success," said Dinneen. "From just 175 million gallons in 1980, the industry has increased more than ten-fold to 2 billion gallons today. As a result, farmers across the country have received higher prices for their commodities, more than 200,000 jobs have been created in rural America, the U.S. has reduced its oil imports, and most importantly, Americans are breathing cleaner air."

Congress consistently has supported tax incentives to encourage the increased production and use of fuel ethanol. Refiners and gasoline marketers using 10% ethanol blends pay 13¢ per gallon in federal excise taxes, a 5.3¢ reduction from the tax paid on straight gasoline.

Consumers benefit further because reduced farm program costs and increased income tax revenue attributable to the federal ethanol program provide a net savings to the U.S. Treasury of $3.6 billion a year, according to RFA. For every dollar invested by the federal government to stimulate ethanol production and use, roughly $7 is returned to the treasury in tax revenue and savings from reduced government outlays.

"The RFA strongly urges the committee to consider extending the federal ethanol tax incentive program as it considers comprehensive energy policy legislation this year," said Dinneen. "The importance of ethanol as an alternative fuel to the nation's economy has never been greater, and its value promises to grow even larger."

He continued, "High oil prices increase the cost of doing business for virtually all firms and drain additional money from consumers' pocketbooks. Falling domestic production of petroleum, near record levels of capacity utilization in refining, and increased dependency on imported oil make now the time to re-double our efforts to promote the increased production and use of domestic, renewable fuels such as ethanol. As the U.S. ethanol industry continues to grow, many investors are looking for such a commitment on the part of the Congress before moving forward with certain ethanol projects."

Dinneen also urged the Committee to address the current limitations of the small producer credit and make it more usable for farmer-owned cooperatives. Under present law, a small ethanol producer (annual production capacity of 30,000,000 gallons or less) is eligible for an income tax credit of 10 cents per gallon on up to 15,000,000 gallons of alcohol production. While intended to stimulate expanded production, particularly by small farmer-owned facilities, the credit is not readily available to cooperatives or their patrons.

"The RFA believes that states should not be penalized for acting on the federal government's desire to increase the production and use of ethanol," said Dinneen. "Thus, we support transferring the 2.5¢ currently directed toward deficit reduction back to the Highway Trust Fund."