July 19, 2010

Options emerging as ethanol tax credits look vulnerable

As many as 80,000 vehicles owned by Nebraska drivers are flex-fuel models built to burn a fuel mixture that's 85 percent ethanol.

But fewer than 10 percent of them operate on that basis, according to industry estimates that Steve Sorum tracks as project manager for the Nebraska Ethanol Board.

The wayward 90 percent include one driven by Sorum's own father.

The younger Sorum, a dedicated promoter of grain-based fuel, noticed the decal that identified a Ford Expedition as a flex fueler as his dad, Keith Sorum of Alliance, got ready to fill his tank recently.

"I congratulated him," Steve Sorum said, "and he didn't know what I was talking about."

The gap between flex-fuel capability and flex-fuel use in Nebraska persists, even though E-85 was a whopping 70 cents cheaper per gallon in Lincoln as recently as Friday.

A big reason, apart from driver ignorance, is there are only four stations in Lincoln that sell E-85, and only about 60 in the state.

But before you start scratching your head too hard over these circumstances, you might want to to wait to see if the itch goes away.

As the ethanol industry looks ahead to the expiration of a blender's tax credit on Dec. 31, U.S. Rep. Jeff Fortenberry has wheeled out the Renewable Fuels for America's Future Act.

Legislation he filed Thursday proposes to cut back on subsidies paid to ethanol blenders at a first-year savings of $5.67 billion.

At the same time, he would mandate production of more flex-fuel vehicles and offer incentives to service station owners to add E-85 pumps.

"I just believe this is a winner for farmers, it's a winner for the environment, and it's a winner for the American taxpayer," Fortenberry said Friday.

Fortenberry is among those who believe the beleaguered federal budget can't handle something as simple as a five-year extension of a tax credit that goes to ethanol blenders at the rate of 45 cents per gallon.

"I think the status quo is unacceptable," he said. "I'd say there's less probability of a straight-forward extension of the tax credit."

This is a matter of potentially huge significance in Nebraska, the nation's second-leading ethanol-producing state.

Nebraska got to where it is -- 24 ethanol plants, and counting -- largely because of the tax credits that went to those who blended ethanol and gasoline in a 10 percent-90 percent recipe and moved it into the marketplace.

But Sorum and others in the industry sense the end is near for that strategy, at least at the current cost.

"One of the biggest hurdles, at this point, is just the federal budget," he said. "As we understand it, if you're coming to Congress for a tax break or an incentive of some kind, there has to be a corresponding source of revenue. And that's proven very difficult."

That same message about recrafting the ethanol stimulus package is getting amplified in mid-July by Growth Energy, a pro-ethanol coalition whose members include 61 ethanol plants in Nebraska and surrounding states.

Jeff Broin, Growth Energy chairman, used a media conference call to advocate for "a blender pump in every neighborhood and a flex-fuel vehicle in every garage."

Broin, also chief executive of Poet Energy, based in Sioux Falls, S.D., and billed as the world's largest ethanol producer, said using a federal program to build more of that type of ethanol infrastructure is a better option than just extending tax credits.

Ethanol pipelines to carry finished product from the Midwest to both coasts are another ingredient in what he sees as a better recipe.

"If these infrastructure investments are made," Broin said, "the tax credits could fade away."

Gen. Wesley Clark, former NATO commander and presidential hopeful and now Growth Energy's co-chairman, said more emphasis on ethanol can help eliminate dependence on foreign oil.

Unlike other energy alternatives, ethanol is "here today," Clark said during the conference call with reporters. "We can....