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ETHANOL
& PUBLIC POLICY
Renewable
Fuels Standard (RFS)
As part of the comprehensive
Energy Policy Act of 2005 that was signed into law Aug. 8, 2005, the
Renewable Fuels Standard (RFS) helps define the role that renewable
fuels such as ethanol and biodiesel will play in America’s quest
to improve homeland security through increasing our use of renewable,
domestically produced transportation fuels—and improve our environment
by reducing toxic exhaust emissions.
The RFS provides
stable demand for the use of renewable fuels such as ethanol while providing
refiners with the flexibility to blend ethanol more efficiently in areas
of the country where it makes the most sense economically and environmentally.
The measure sets the minimum annual level of renewable fuel blended
into the nation’s fuel supply at 7.5 billion gallons per year
by 2012. The legislation guarantees a robust future market for corn
(estimated at about 2.6 billion bushels by 2012) and allows for continued
opportunities for farmer investment in new ethanol plants.
The RFS schedule
requires 4 billion gallons of renewable fuels to be blended into the
national gasoline supply in 2006, with incremental increases each successive
year.
| Year |
Renewable Fuels Requirement
(billions
of gallons) |
2006 |
|
4.0 |
2007 |
|
4.7 |
2008 |
|
5.4 |
| 2009 |
|
6.1 |
| 2010 |
|
6.8 |
2011 |
|
7.4 |
| 2012 |
|
7.5 |
An RFS will also
reduce the cost of the farm bill by slightly raising the price of corn,
creating more value-added opportunities for farmers and strengthening
rural economies.
Building
Coalitions
The development
of the concept of an RFS marked the first time that agriculture, the
oil industry and environmental interests agreed on the role that renewable
fuels such as ethanol will play in our nation’s effort to reduce
reliance on imported oil, improve air quality and increase domestic
fuel supplies.
Oil interests were
involved because they are interested in providing refiners and petroleum
marketers with increased flexibility in fuel formulation, transportation
and marketing. With a clear role defined for renewable fuels in the
nation’s fuel supply, petroleum marketers can more easily comply
with clean air requirements and better manage the distribution of transportation
fuels in the United States.
Groups interested
in the environment joined the coalition because renewable, oxygenated
fuels have been proven to reduce toxic emissions and improve air quality
in major American cities such as Denver, Albuquerque, Minneapolis and
Phoenix. Additionally, the phase-out of MTBE is of particular interest
to these groups because of MTBE’s history of polluting groundwater
supplies.
Farm groups support
the RFS because it helps create additional markets for ethanol made
from corn. Increasing ethanol production leads to increased corn consumption,
thus helping reduce agriculture’s dependence on government support
programs. Ethanol production increases economic activity in rural communities
and provides economic opportunities for farmers in a value-added industry.
While each member
of the coalition has its reasons for supporting the concept of a Renewable
Fuels Standard, the RFS transcends parochial interests and puts the
interest of America first and foremost.
VEETC
A joint effort of
highway groups and farm organizations helped achieve an historic victory
for renewable fuels in 2004 with the passage of the American Jobs Creation
Act.
This important tax
bill created the Volumetric Ethanol Excise Tax Credit (VEETC), which
ensures that Highway Trust Fund (HTF) revenues are not adversely affected
by ethanol use. VEETC also makes ethanol blending flexible for petroleum
companies and more accessible for growing markets such as E85, E diesel
and fuel cells.
VEETC also strengthens
the nation’s commitment to biofuels. The act extends the ethanol
tax incentive at 51 cents per gallon through December 31, 2010. It also
creates a new tax incentive for biodiesel and improves the small ethanol
producer tax credit to allow a farmer cooperative to pass the credit
along to its farmer owners.
VEETC is expected
to generate more than $3 billion per year in additional HTF revenue,
improving the ability of the federal government and states to improve
transportation infrastructure.
Oil
Industry Subsidies
While the ethanol
benefits from tax incentives and public policy initiatives, there is
no question that the oil industry receives a greater share of support
from taxpayers and the government.
According to Citizen
Action: “U.S. taxpayers are providing at least $5 billion per
year in tax breaks in the form of foreign tax credits to provide U.S.
multinational oil companies with an incentive to invest billions of
dollars to find and product oil overseas so that it can then be exported
to the United States.”
A 1989 study by
the General Accounting Office found that, since 1968, the oil industry
had received approximately $150 billion in tax incentives. By contrast,
the ethanol industry had received $11.2 billion through a partial exemption
of the federal excise tax and $200 million in income tax credits.
A 1997 editorial
in the New York Times put the real cost of gasoline—including
military expenditures to protect oil interests—at $5 per gallon.
Last
reviewed June 10, 2005
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