THE END OF ETHANOL ?EUR" NOT!
By Ronald H. Miller
Last week the U.S. Senate voted to approve an amendment that would end the Volumetric Ethanol Excise Tax Credit as part of the effort to reduce this nation's deficit. Two major proponents of ending support for ethanol, Senators Tom Coburn (R-OK) and John McCain (R-AZ), contend that the government should not be in the business of subsidizing one energy form over another rather letting the free market determine the winners. Interestingly, just a few weeks before, both Senators voted against ending oil and gas subsidies which vastly exceed anything ever done for ethanol. I guess it's hard to be a purist when it comes to unbiased fiscal discipline and the free marketplace.
Outside of some backslapping in the oil patch and perhaps a small cheer in Tehran and Caracas what is going to happen? Not much except to maybe raise the price of gasoline at the pump. You see, virtually every gallon of gasoline sold in the U.S. contains 10% ethanol so this bill, if passed into law, represents a tax increase of 4.5 cents per gallon of gasoline or about another $40 per year to your family fuel bill. That's not welcome news for a middle class family already struggling with $4.00 per gallon gasoline prices.
Productivity improvements have made ethanol cheaper than gasoline. Last year consumers saved $0.89 per gallon or $800 on their family fuel bill because of ethanol while this country lowered its oil import bill by $36.5 billion at today's prices. Ethanol is the only alternative to gasoline with sustainable critical mass. And quite frankly that is what the fight is about - market share and profit. Without ethanol, gasoline prices would jump from today's $4.00 per gallon to $5.60 - $7.70 per gallon according to a study conducted by economists Dermot Hayes and Xiaodong Du. Now if ethanol could be completely removed there would be sustained cheering in the oil patch and several foreign capitals.
That's not going to happen. Biofuels are here to stay. Energy Secretary Chu recently stated his vision of a "glucose economy" where the future lies in a sustainable supply of renewable sugars transformed into energy and other useful products supplanting the old fossil fuel economy. One needs simply to look at the Brazilian model to see that future. There government and industry work together to create the stability and environment needed for steady growth of biofuels over the long term. As a result American investment in the global glucose economy is headed there instead of visa versa and Brazil, once a major oil importer has become an oil exporter.
We have great potential for biofuel growth in the United States with many new feedstocks. We are the world's leader in biofuel production despite our lack of a cohesive energy plan. The small Midwest town in which I live is a beneficiary of the huge economic stimulus provided by ethanol. We need to replicate that economic stimulus in other regions of the country at the expense of foreign oil. It is time for Congress to take the leadership role in formulating a national energy strategy that will encourage investment in biofuels by removing uncertainty. We invite Senators Coburn and McCain to climb out of the oil patch and join the sustainable glucose economy. It's only our nation's future that is stake.
Ronald H. Miller is Managing Director and co-founder of Prisma Advisors, LLC a management advisory firm specializing in advanced biofuels. Mr. Miller has over four decades of energy experience, including CEO of a Fortune 1000 producer of biofuels and food products from agriculture.