Urbanchuk: Ethanol Tax Credit an Economic Success
From the December 2008 Issue of Ethanol Producer Magazine:
Urbanchuk: Ethanol tax credit an economic success
by Susanne Retka Schill
For each dollar invested in America’s ethanol industry in the form of the federal excise tax credit, nearly $5 has been returned to federal, state and local government and the economy as a whole, according to an analysis by economic consulting firm LECG LLC director John Urbanchuk. According to the analysis, the tax provision has not only increased federal tax revenues, but also reduced imported oil expenditures and put more money into consumer pockets. “Economically, this incentive has been an unequivocal success,” Urbanchuk said.
Conducted by Urbanchuk on behalf of the Renewable Fuels Association, the analysis detailed the dollar impact of the America’s ethanol industry. ”[It has] generated an estimated $33.4 billion (in 2008 dollars) in tax revenue for the federal government and nearly $17 billion (in 2008 dollars) of additional tax revenue for state and local governments since 1978, reduced America’s tab for imported oil by $97.5 billion, helped reduce farm program payments by more than $3 billion annually since 2006, and put some $66 billion more into the pockets of Americans in the form of increased household income since its inception in 1978.”
According to Urbanchuk, the federal investment in America’s ethanol industry has been and will continue paying dividends for the American economy. “The federal tax incentive has spurred the kind of investment in rural America that has not been seen perhaps since the New Deal. The resulting benefits of this investment have yielded billions of dollars in new tax revenue, created hundreds of thousands of jobs, reduced America’s oil dependence by billions of barrels, and helped keep nearly $100 billion here at home rather than being spent for oil overseas,” he said.
The analysis included the following benefits of the federal tax incentive for ethanol blending and the resulting growth of the American ethanol industry since 1978:
· More than 53 billion gallons of ethanol have been produced, or about 1.2 percent of all the motor gasoline sold over this period. (In 2008, ethanol represented 7 percent of the nation’s gasoline supply.)
· A displacement of nearly 1.9 billion barrels of imported crude oil (the amount of crude required to produce the ethanol equivalent of 34.9 billion gallons of gasoline) valued at $97.5 billion (in 2008 dollars).
· An addition of $228 billion to the nation’s Gross Domestic Product by 2008.
· The creation of more than 210,000 jobs in all sectors of the economy, a conservative number since 2006; this calculation includes only those gallons produced above the mandated levels as established first in the Energy Policy Act of 2005 and revised in the Energy Independence and Security Act of 2007. If the industry as a whole is considered, the ethanol industry helped create 238,000 new jobs in 2007 as a result of the 6.5 billion gallons produced.
· The ethanol industry has paid for itself since the inception of the excise tax credit. An estimated $33.4 billion (in 2008 dollars) in tax revenue for the federal government and nearly $17 billion (in 2008 dollars) of additional tax revenue for state and local governments has been generated since 1978. The estimated cost of the ethanol tax credit over this same period was $30.4 billion (in 2008 dollars). Consequently, the ethanol industry generated a surplus of about $3 billion for the federal treasury alone over the past three decades.
· The excise tax credit has saved taxpayers money by reducing farm program outlays through higher corn prices. Recent research published by Iowa State University estimated that the U.S. federal government saved $3.45 billion in 2007 alone because it was not making loan deficiency payments, as it was in 2005 and 2006.
The full report is available online at www.lecg.com/etea08.
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. By blending fuel-grade ethanol with gasoline at the gas station pump, Renergie will offer the consumer a fuel that is more economical, cleaner, renewable, 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.