On Thursday, the Senate voted to bring an end to the Volumetric Ethanol Excise Tax Credit (known widely as the “blender’s credit,”) which effectively pays gasoline refiners to include ethanol in the fuel mixes sold at most stations around the country. Ethanol has long come under fire from its many critics for a decades-long reliance on heavy government subsidies, its role in driving up food prices, and questionable environmental benefits.
Steadfast support from Washington has helped to ensure the continuation of billions of dollars per year in ethanol subsidies, but with the political climate leaning heavily in favor of deep cuts in the federal budget, congressional patience for the fuel is waning. Still, supporters of corn-derived fuel seem to have little to fear from the latest attempt to curb government spending.
Higher Prices, Same Demand
The ethanol lobby has long claimed that the $0.45 per gallon tax credit awarded to refiners for selling E10, E15 and E85 blends of gasoline has little to no effect on its revenue or production volume. In fact, industry groups like Growth Energy have even repeatedly offered to accept an end to the VEETC if the government agrees to take steps to increase market access for ethanol.
So why are ethanol producers so eager to abandon a subsidy that was created to stimulate demand for their product? Because the federal Renewable Fuels Standard mandates the amount of ethanol blended into gasoline sold in the United States each year—meaning that demand for E10 and E15 will be largely unaffected regardless of cost.
In fact, the only parties likely to feel the financial impacts of the elimination of the blender’s credit would be consumers and gasoline refiners. According to one industry expert, the elimination of VEETC would cost consumers a roughly $0.22 per gallon increase in the price of blended E10 ethanol at the pump—with the rest of the lost subsidy cutting into refiner profits.
Regardless of the outcome of the current congressional dispute over the VEETC, billions of dollars in other direct federal subsides to the industry itself will remain in place, as will the most crucial element of government support for ethanol: the Renewable Fuels Standard. So as long as the federal government mandates the amount of ethanol that is produced and sold in the United States, the fuel will be a mainstay at gas stations nationwide.