In a conference call with reporters Tuesday, POET founder and CEO Jeff Broin discussed the soon-to-be-expiring ethanol tax credit and other issues for the industry looking ahead.
Here’s a transcript of his remarks:
Thank you all for joining me today.
The end of this year will mark a significant transition for the American ethanol industry. But it’s significant for a reason that isn’t immediately obvious.
This transition started years ago, when policy-makers decided that, in order to do something about our oil addiction, American ethanol would be taxed at a lower rate than foreign oil. The ethanol tax credit directly led to the creation of the most successful renewable energy source in American history. Ethanol now makes up 10% of our nation’s gasoline supply and is in more than 9 out of 10 gallons pumped in America.
But the tax credit wasn’t designed to stay at the initial level, or to last forever. That’s why it has been reduced several times since its inception and expires at the end of this year. The goal of the credit was to launch an industry that eventually wouldn’t need it to be sustainable, and that has been successful.
Over the last 30 years the industry, to improve profitability, became increasingly more efficient as the tax credit was decreasing. Since POET started producing ethanol more than 20 years ago, our process has cut energy use in half and water use by 80 percent, while increasing yields more than 20 percent.
Thanks to those efficiency gains and the steadily increasing price of oil, the industry has now matured to the point that it can survive without the tax credit.
Let me repeat that. Ethanol is now able to compete with gasoline without a tax break. That’s the significance of this transition. That it won’t have a significant impact on the industry.
The reality is that, with the exception of a few short periods, ethanol has been priced below gasoline for the past three years. Since the start of 2008, ethanol has been an average of 16 cents below gasoline without the tax credit, which is a bargain for such a high octane fuel. Today, American ethanol is so competitive that we’ve become a major exporter, even to Brazil.
In the short term, the most notable consequence of the tax credit expiring is that consumers will pay higher gasoline prices, around 4 cents more per gallon. However, the consumer still benefits because ethanol lowers all gasoline prices at the pump around 17 cents per gallon, saving every driver in America more than $100 per year.
We should take this time of transition to evaluate the role government plays going forward.
First, we can’t afford to go backward on our renewable fuel targets, so policy makers must maintain the Renewable Fuel Standard. The road to the pump for ethanol still goes through our competitor, the oil industry.
Second, we must continue to invest in cellulosic ethanol. Although innovators like POET have made much progress over the past few years and the potential is more than 80 billion gallons per year, no one is yet producing at commercial-scale. Policy support for cellulosic ethanol has played a significant role in industry progress. If we’re going to see it through to the finish and realize this great potential, policy-makers must continue to support the development of the cellulosic ethanol industry.
Recent news on this hasn’t all been good. There have been funding and implementation problems with the Biomass Crop Assistance Program. Some have suggested that we water down the Renewable Fuel Standard. And most importantly, the Cellulosic ethanol tax credit has not yet been extended beyond 2012.
Third, policy makers should open the market to all fuels and let us compete head-to-head with imported oil. Allowing higher blends of ethanol like E15, requiring flex fuel vehicles and incentivizing flex pumps are all efforts that allow consumers to choose cleaner burning, American made fuels with little or no cost to taxpayers.
In summary, we have b een improving the efficiency of the ethanol production process for decades and that has put us in a position to compete with gasoline head-to-head without the aid of the tax credit. POET believes that policy-makers must use this transition period to invest in infrastructure and in future innovations in renewable fuels like cellulosic ethanol.
Thank you
