Des Moines Register
10-01-06
Ending ethanol tariff could boost use, but hurt old plants
WASHINGTON FARM REPORT
PHILIP BRASHER
REGISTER WASHINGTON BUREAU
Washington, D.C. - If ethanol is such a good motor fuel, then America ought to
import it as well as make it.
Or at least that's the argument of people who contend Congress ought to
eliminate the 54-cent-per-gallon tariff on imported fuel ethanol.
Now, we have an idea of what it means to lift that tariff, thanks to a study by
international trade specialists at Iowa State University.
Eliminating the tariff would definitely boost consumption and hurt the U.S.
industry, but the impact may not be as dramatic as you might think.
Here's the bottom line:
Motorists would use more ethanol, the price of which would drop about 14
percent less than what it would be with the tariff. That might save motorists a few
cents per gallon, assuming the savings were passed on to them.
U.S. production of ethanol would be about 7.5 percent lower. That's about 500
million gallons, or the annual production of 10 average-size ethanol plants.
That, in turn, would nick the price of corn about 4 cents per bushel.
The actual effects of removing the tariff could be greater - or smaller - depending
on the industry's growth in coming years.
Older, less efficient ethanol plants "would be the ones that would more likely face
the pressure here," said Chad Hart, an Iowa State economist who advised the
study's authors.
A note about the study: It's likely understating the impact somewhat, simply
because the U.S. industry's growth is outstripping anyone's ability to project
where it's going. It's also not clear how much U.S. competitors, chiefly Brazil,
would expand their ethanol production. Right now, Brazil has little to spare.
Ending the tariff is a dead issue for now, as far as Congress is concerned. The
idea will never get through the Senate Finance Committee, so long as Sen.
Charles Grassley, R-Ia., is chairman.
But criticism of the tariff isn't going away. Columnist Tom Friedman of the New
York Times is the latest to jump on that idea.
Friedman is a fan of alternative fuels. After a tour of Brazil recently, he asked in
his column whether retaining the import tariff was "just stupid or really stupid."
It's not stupid at all from the point of view of U.S. ethanol producers and their
bankers.
In fact, the future of the tariff is the top policy issue on the minds of prospective
investors in the ethanol industry, said Jon Doggett, the chief lobbyist for the
National Corn Growers Association.
The tariff might just turn out to be a valuable bargaining chip. The ethanol
industry really would like to increase the biofuels mandate that Congress enacted
in 2005. The law requires motorists to use 7.5 billion gallons of ethanol and
biodiesel by 2012, but that's already out of date.
Plants now in operation or under construction will produce nearly 8 billion gallons
a year, and many more plants are in the planning process.
Proposals in Congress would double the 2012 mandate to 15 billion gallons,
which would go a long way toward reassuring the industry's investors that there
will be a growing market for ethanol.
Getting Congress to do that won't be easy. But the public interest in alternative
fuels isn't likely to go away, either, barring the bottom falling out of oil prices.
"The enthusiasm for renewables around the country and even in Washington is
so great that I don't know that we need a bargaining chip," said Sen. Jim Talent,
R-Mo.
Maybe so, but the industry has one.
Reporter Philip Brasher can be reached at (202) 906-8138 or
pbrasher@dmreg.com