Push to Credit E85

Ethanol supporters step up fight for alternative fuel tax credit for biofuel

Samantha Oller, Senior Editor/Fuels, CSP

WASHINGTON -- While high gas prices have made E85 seem like a bargain lately, advocates for the biofuel know that relationship is only as permanent as the current prices of crude and corn. With that in mind, ethanol proponents are stepping up pressure on Congress to grant a permanent tax credit for E85.

The Governors' Biofuels Coalition, a group of ethanol state governors and some international players, sent a letter last week to Representative Dave Camp (R) and Senator Max Baucus (D), chairmen of the House Ways & Means Committee and Senate Finance Committee, respectively, as well as two ranking members to encourage them to include E85 in the definition of the Alternative Fuel Tax Credit and recommending that the provision be extended as part of the pending "Extenders Bill."

E85 retailers are currently selling the biofuel without the benefit of a 38.25-cent-per-gallon (CPG) credit they formerly enjoyed before the Volumetric Ethanol Excise Tax Credit (VEETC), which expired at the end of 2011. While E85 is defined as an alternative fuel in the Energy Policy Act of 1992, it was excluded from a 45-CPG tax credit given to other alternative fuels to avoid "double-dipping" incentives while VEETC was still active.

Considering the fledgling state of the E85 market--about 2,500 sites or only 1.5% of fueling locations in the United States--proponents are arguing that the biofuel needs the Alternative Fuel Tax Credit to not only stay competitive but also help the country meet the ethanol mandate in the Renewable Fuels Standard (for more on E85's price predicament, see Related Content below or see the February 2012 CSP magazine cover story, "The End of E85?").

"While ethanol as a fuel additive (E10) is not requesting a subsidy, ethanol as an alternative fuel (E85), in the short run, continues to need a tax incentive to establish its position in the marketplace, to encourage expanding the availability of stations providing alternative fuel options, and to allow the Renewable Fuel Standard to do its job, allowing E85 to become a self-sustainable alternative fuel," the letter from the governors said. "Without the credit, consumers will turn to standard gasoline options."

Industry experts agree that ideally, E85 needs to be priced at a 25% to 30% discount to regular gasoline to be competitive, because of its lower fuel economy. The spread was widest in April at 14.5%, after falling to only 7.1% in December 2011, according to E85prices.com. Currently, the average spread is 13.8%, with eight states showing a greater than 15% spread. In the site's poll of flex-fuel vehicle (FFV) drivers, nearly 55% said they buy E85 when the spread is 20% or greater.

"If E85 is not included in the alternative fuel tax credit, flex-fuel vehicle drivers will pay as much as 38 cents more per gallon, significantly reducing the demand for the fuel," the governors' letter says. "On the other hand, extending the credit with E85 would only cost the Treasury approximately 0.8% of the full, expired ethanol subsidy. We believe this small, short-term investment will make a significant difference in the success of petroleum fuel alternatives."

The Governors' Ethanol Coalition includes governors of 33 states that produce approximately 95% of the ethanol generated in the United States. It also includes international representatives from Brazil, Canada, Mexico, Australia, Sweden and Thailand. The group seeks to increase the use of biofuels in general, decrease the country's dependence on imported energy and diversify its energy portfolio, improve the environment and stimulate the economy.