Why Big Oil Should Not be Allowed to Monopolize the Blender’s Tax Credit

Posted on May 31, 2009. Filed under: Blender's Tax Credit, Field-to-Pump, Hydrous Ethanol | Tags: , , , , |

Why Big Oil Should Not be Allowed to Monopolize the Blender’s Tax Credit

By Brian J. Donovan

Renergie

May 31, 2009

 

 

The issue is whether state legislatures should allow oil companies, or affiliates of oil companies, to have a monopoly on blending fuel ethanol with unblended gasoline.

The American Jobs Creation Act of 2004 established the Volumetric Ethanol Excise Tax Credit (“VEETC”), also known as the “Blender’s Tax Credit.” Excise taxes on highway fuels have been a dedicated source of funding for the Federal Highway Trust Fund since its creation in 1956. The Federal Government levies a tax of 18.4 cents per gallon on domestic gasoline sales. The blender’s tax credit provides a credit against federal gasoline taxes that is worth 45 cents for every gallon of ethanol blended into the gasoline pool.

The excise tax credit is fully refundable. To receive a refund, a blender must first apply the excise tax credit against any excise tax liability for a particular taxable year. To the extent the blender has any excise tax credit remaining after applying the credit against its excise tax liability, the blender may request a refund of the excess credit or may apply the excess credit against its income tax liability.

It was never the legislative intent of the U.S. Congress, nor the intent of the U.S. Environmental Protection Agency, to allow oil companies to be the sole beneficiaries of the blender’s tax credit. Section 6426 of the Internal Revenue Code creates a credit against the excise tax on taxable fuels. The excise tax credit is generally available to any person that blends alcohol or biodiesel with taxable fuel in a mixture. To qualify for the credit, a qualifying mixture must either be sold by the producer to a buyer for use by the buyer as a fuel or be used as a fuel in the trade or business of the producer.

If U.S. ethanol producers are able to be blenders of fuel ethanol and unblended gasoline, and thereby receive the 45 cents-per-gallon tax credit, small-capacity ethanol producers would be able to enter the market. The result would be fair and healthy competition in the marketing of ethanol blends.

The benefits of allowing ethanol producers to blend and directly market ethanol blends to the consumer are the following:

(a) Rural economic development and job creation would be maximized. Increased investments in plants and equipment would stimulate the local economy by providing construction jobs initially and the chance for full-time employment after the plant is completed. On average, an ethanol plant supports 45 full-time jobs and nearly 700 jobs throughout the entire economy;

(b) The resulting increase in local and state tax revenues would provide funds for improvements to the community and to the region; and

(c) Federal and state renewable energy technology grants for ethanol would not be required. The blender’s tax credit and the market would reward the ethanol producer/blender.

In 2008, ExxonMobil reported the largest annual profit in U.S. history. ExxonMobil’s annual profit jumped 11%, or $5.2 billion, to $45.2 billion on the back of record oil prices. ExxonMobil returns most of its profit to shareholders, distributing about $40 billion in 2008 in the form of share buybacks and dividends. Chevron was also up more than $5 billion for the year, to $23.9 billion. A substantial portion of Chevron’s increase came in a fourth-quarter jump in its profits for refining and marketing of gasoline and other fuels.

Currently, oil companies are refusing to sell unblended gasoline to ethanol producers. The sole beneficiaries of the 45 cents-per-gallon blender’s tax credit are the oil companies, blenders affiliated with oil companies, and oil company shareholders. As a result, the farmers/landowners, ethanol producers and consumers never realize any benefit from the blender’s tax credit; rural economic development is ignored; and U.S. jobs are not created.

State legislatures should not permit only oil companies and their affiliates to blend and receive the 45 cents-per-gallon blender’s tax credit. This monopoly impairs fair and healthy competition in the marketing of ethanol blends. U.S. ethanol producers have the legal right, and must be assured the availability of unblended gasoline, to blend fuel ethanol and unblended gasoline to receive the blender’s tax credit and be cost-competitive.

Rural development and job creation, not the maximization of oil company annual profits, should be the focus of our state legislatures.

 

About Renergie

Renergie was formed by Ms. Meaghan M. Donovan on March 22, 2006 for the purpose of raising capital to develop, construct, own and operate a network of ten ethanol plants in the parishes of the State of Louisiana which were devastated by hurricanes Katrina and Rita.  Each ethanol plant will have a production capacity of five million gallons per year (5 MGY) of fuel-grade ethanol.  Renergie’s “field-to-pump” strategy is to produce non-corn ethanol locally and directly market non-corn ethanol locally. On February 26, 2008, Renergie was one of 8 recipients, selected from 139 grant applicants, to share $12.5 million from the Florida Department of Environmental Protection’s Renewable Energy Technologies Grants Program.  Renergie received $1,500,483 (partial funding) in grant money to design and build Florida’s first ethanol plant capable of producing fuel-grade ethanol solely from sweet sorghum juice. On  April 2, 2008, Enterprise Florida, Inc., the state’s economic development organization, selected Renergie as one of Florida’s most innovative technology companies in the alternative energy sector.  On January 20, 2009, Florida Energy & Climate Commission amended RET Grant Agreement S0386 to increase Renergie’s funding from $1,500,483 to $2,500,000. By blending fuel-grade ethanol with gasoline at the gas station pump, Renergie will offer the consumer a fuel that is renewable, more economical, cleaner, and more efficient than unleaded gasoline.  Moreover, the Renergie project will mark the first time that Louisiana farmers will share in the profits realized from the sale of value-added products made from their crops.

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    Renergie created “field-to-pump," a unique strategy to locally produce and market advanced biofuel (“non-corn fuel ethanol”) via a network of small advanced biofuel manufacturing facilities. The purpose of “field-to-pump” is to maximize rural development and job creation while minimizing feedstock supply risk and the burden on local water supplies.

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