Bad Policy?

Just as we were turning the corner into a new year, federal lawmakers were contemplating extending Bush-era tax cuts. Part of that includes an extension of the tax credit for ethanol use.

All ethanol tax policies were extended for another year. One of those is the Volumetric Ethanol Excise Tax Credit; also know as VEETC, it’s a credit of 45 cents for every gallon of pure ethanol blended into gasoline. A registered blender is the only individual in the supply chain that is eligible for this credit. The small producer’s tax credit and the alternative fuels mixture tax credit were also extended.

Total U.S. ethanol subsidies reached $7.7 billion last year according to the International Energy Industry. And, worldwide, biofuels received more subsidies than any other form of renewable energy.

However, former Vice President Al Gore says some of those subsidies are bad business.

“It is not a good policy to have these massive subsidies for first generation ethanol,” said Gore, speaking at a green energy business conference in November. “First generation ethanol I think was a mistake. The energy conversion rations are at best very small.”

U.S. ethanol is made by extracting sugar from corn and is an energy-intensive process. The U.S. ethanol industry is expected to use up about 41 percent of the U.S. corn crop this year and 15 percent of the global corn crop.

Gore says the effect on food prices cannot be ignored.

“The size, the percentage of corn particularly, which is now being used for first generation ethanol definitely has an impact on food prices. The competition with food prices is real,” said Gore.

Gore does, however, support so-called second-generation technologies that use cellulosic-based methods drawn from wood, waste or grasses.