Chicago, 16 May 2011

The 45-cent per gallon VEETC subsidy for ethanol blenders, and the 54-cent tariff on imported ethanol, both expire at the end of this year.

However, a Senate bill introduced on May 3 by Senators Tom Coburn (R-OK) and Diane Feinstein (D-CA) would eliminate the VEETC on July 1 and "save" about $3 billion by year's end.  In response, Senators Charles Grassley (D-IA) and Kent Conrad (D-ND) introduced a bill that would preserve the VEETC through 2016 but reduce the subsidy to 20 cents per gallon in 2012 and 15 cents in 2013, thus weaning the industry off VEETC.  After 2013, the subsidy would fluctuate between zero and 30 cents depending on oil prices.

The ethanol industry recognizes that the current VEETC and tariff measures are not going to be extended intact when they expire at the end of the year given the tough budget deficit climate and given the hostility among some lawmakers to ethanol based on environmental or policy grounds.  The ethanol industry at this point is simply trying to salvage some VEETC support and garner increased support for building ethanol demand with tax credits for installing blender pumps, loan guarantees for cellulosic facilities, and stronger requirements for new vehicles to be flex-fuel ready.

Ends --

Souce: CME Group Ethanol Outlook Report (May 16, 2011)

www.cmegroup.com