Investing

Alt Energy Watch: Senators Reach Deal on Ethanol Subsidies (ADM, VLO, PEIX, GPRE, CZZ, RDS-A)

The writing has been on the wall for about three weeks: the $0.45/gallon ethanol subsidy and the $0.54/gallon tariff on imports are politically dead. Another nail got hammered into the coffin yesterday as U.S. Senate advocates and opponents of federal support for corn ethanol reached a deal that eliminates both the subsidy and the tariff, but maintains a tax credit for cellulosic ethanol and other less controversial spending on ethanol infrastructure. But don’t expect the proposal to alter fuel prices at the pump by much.

The deal ends the volumetric (blender’s) credit and the tariff on July 31st. The tax credits for cellulosic ethanol and fueling infrastructure are extended for three years and the small producer tax credit is extended for an additional year. The effect on large ethanol producers like Archer Daniels Midland Co. (NYSE: ADM) and Valero Energy Corp. (NYSE: VLO) is likely to be negligible at most. Even smaller producers like Pacific Ethanol Inc. (NASDAQ: PEIX) and Great Plains Renewable Energy, Inc. (NASDAQ: GPRE) won’t feel much effect because the blender’s credit is effectively all passed along to the corn producers. Raizen, the Brazilian joint venture between Cosan Ltd. (NYSE: CZZ) and Royal Dutch Shell plc (NYSE: RDS-A) and other Brazilian producers could see some gain eventually, but right now Brazil is importing ethanol from the U.S. because it can’t make the stuff fast enough.

Last April, U.S. Secretary of Agriculture, Tom Vilsack, suggested that ending the blender’s credit and redirecting some of the funds toward installing more blender pumps at U.S. gas stations. That is precisely what the compromise deal does, but only about $688 million is targeted at the ethanol infrastructure.

Installing a single blender pump and tanks costs about $100,000, so that’s 6,880 pumps annually for three more years, or about 20,000 altogether. The ethanol industry wanted federal support to install 200,000 of the pumps, which would have roughly equaled the $6 billion annual subsidy that corn ethanol has enjoyed. That didn’t happen.

Ethanol industry lobbyists are also decrying the cap on the number of gallons of cellulosic ethanol that are eligible for subsidy. The cap is 50 million gallons in 2013, 100 million gallons in 2014, and 155 million gallons in 2015. For an industry that effectively produces zero million gallons today, these caps don’t figure to have much impact.

The loss of the ethanol subsidy will have its biggest impact on corn growers who have received the bulk of the blender’s credit. The price of corn, however, may not be affected much one way or the other.

The proposal still has to make it through the full Senate and the House before going to the President for signature. There is likely to be some tweaking around the edges, but the ethanol subsidy and tariff are headed for the dust bin.

Paul Ausick

The #1 Thing to Do Before You Claim Social Security (Sponsor)

Choosing the right (or wrong) time to claim Social Security can dramatically change your retirement. So, before making one of the biggest decisions of your financial life, it’s a smart idea to get an extra set of eyes on your complete financial situation.

A financial advisor can help you decide the right Social Security option for you and your family. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you.

Click here to match with up to 3 financial pros who would be excited to help you optimize your Social Security outcomes.

 

Have questions about retirement or personal finance? Email us at [email protected]!

By emailing your questions to 24/7 Wall St., you agree to have them published anonymously on a673b.bigscoots-temp.com.

By submitting your story, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.