Industry Fends off Tariff Challenges
Now that ethanol had the backing of new domestic energy policy requiring four billion gallons to be blended into the domestic fuel supply, there were some who thought the industry should be willing to give up some other incentives that had helped it along.
In May of 2006, the target became the 54 cent per gallon tariff on foreign ethanol, with the argument that the nation needed as much ethanol as possible to meet the demand created by the removal of MTBE from the fuel supply. Even President Bush came out in support of at least a temporary end to the tariff on ethanol imports, putting the “pro-ethanol” president at odds with the ethanol industry and farm-state lawmakers. In an interview with CNBC, Bush said, “I think it makes sense to — when there’s a time of shortage of a product that’s needed, so that the consumers can have a reasonable price, it seems to me to make sense to address those shortages and dropping a tariff will enable the foreign export of ethanol into our markets, which will particularly help on our coasts. And yeah, I’ve talked to Congress about that.”
The ethanol industry and its supporters in Congress contended there was plenty of domestic ethanol to meet the demand and that dropping the tariff will have no impact on prices. Senator Charles Grassley (R-IA) and Sen. John Thune (R-SD) issued a joint statement saying that ending the duty was unnecessary and would have negative consequences. “Everyone’s looking for a way to lower gas prices but lifting the ethanol tariff won’t mean lower prices for consumers. What’s more, it would undermine efforts to make our country more energy independent and reward the oil companies that are already raking in record profits.”
House Energy and Commerce Committee Chairman Joe Barton (R-TX) decided to hold a series of hearings on the gasoline supply and price situation. Business and oil industry executives were called to testify about the impact of recent rises in gasoline prices on consumers, retailers and suppliers, international demand for crude oil, refinery and production facilities operating in the U.S., and regulatory challenges for the government. (C-Span Archives)
RFA’s Bob Dinneen was called to testify on behalf of the ethanol industry, between Red Cavaney, President of the American Petroleum Institute, and Bob Slaughter, President of the National Petrochemical and Refiners Association.
“I am pleased to be here to discuss the unprecedented growth in the domestic ethanol industry and the role that ethanol has played in helping refiners cost effectively replace MTBE in those areas where it is still being used,” said Dinneen. “Today’s ethanol industry consists of 97 biorefineries located in 19 different States with the capacity to process more than 1.7 billion bushels of grain into nearly 4.5 billion gallons of high-octane, clean-burning motor fuel and 9 million metric tons of livestock and poultry feed…Mr. Chairman, in large part because of the Energy Policy Act of 2005, the U.S. ethanol industry is today the fastest growing energy resource in the world.”
Dinneen’s glowing report of the ethanol industry’s growth gave Rep. Barton the opening he needed to question the need for the ethanol tariff. “I am supportive of ethanol, but I am somewhat puzzled. Given that the United States is now the world’s largest producer of ethanol, we have a mandate for, I think, 7.8 billion gallons over time, why do we still have to have the tariff protection on imports and the subsidy on domestic production?”
“Well, Mr. Chairman, I think we still have a long way to go before we can have the kind of domestic renewable energy that we want to have. We want to have continued investment in this industry. I think the notion about the tariff, as I indicated, is sort of built upon a series of false premises. It is a solution in search of a problem. Because the tariff today is not a barrier to entry. You have ethanol coming into this country through various preferential trade agreements, NAFTA, the Andean Free Trade Agreement, and most assuredly the CBI. A lot of ethanol comes in duty free already. If the marketplace needed additional imports, it could come in duty free through the CBI today.”
Barton argued that ethanol was currently selling at a higher price point than gasoline. “But, Mr. Chairman, that is without the incentive,” Dinneen responded. “Remember, gasoline companies are going to get a 51-cent tax incentive when they blend that ethanol. So, net the tax incentive, the price is comparable.”
By this point, Barton was getting frustrated at Dinneen’s inability to see how reasonable it was to just agree to let go of the tariff, if only as a show of good faith. “I am for ethanol, I am just not sure with prices where they are at the pump, this seems to be a no-brainer that you reduce or suspend it. You have tariffs and subsidies and mandates when you have either an industry that is in an infant start-up stage, or it is struggling to stay in business. By your own testimony neither of those conditions apply to the ethanol industry. Again, I hope ethanol is the second coming. … I mean it just is an amazing situation. I would think that reducing the tariff would be, if nothing else, an act of faith in America.”
In desperation, Barton turned to his final tactic. “With prices like they are and the mandate, well, I will make you a deal. Pick one of three: Suspend the tariff for two years, eliminate the mandate, or cut the domestic subsidy in half. Which of those would you pick?”
Dinneen answered, “Mr. Chairman, you are asking me to pick amongst my children, and I love them all. I want them all to grow and develop.”
Ultimately, the tariff was extended until the end of 2009. If you want to see the “Reverend of Renewable Fuels” in his prime, watch the CSPAN archives of that hearing. Dinneen was simply masterful.