Ethanol Tax Credits Expire With 2011, Higher Fuel Prices May Follow

Ethanol Tax Credits Expire With 2011, Higher Fuel Prices May Follow

The Volumetric Ethanol Excise Tax Credit expired on Dec. 31. Illinois Corn Growers Association says it could mean you will pay more at the pump.

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," says 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% blend. That's the price advantage that's lost starting on January first," Scates adds. "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% ethanol blend, it is logical to expect that fuel prices across the board should bump up," Scates explains.

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.

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