Corn ethanol will survive subsidy loss, CEO says

Source: DAVID SHAFFER • Minneapolis Star Tribune  • Posted: Thursday, December 8, 2011

Poet LLC’s cellulosic ethanol plant creates fuel from corn husks in Emmetsburg, Iowa. Jeff Broin, Poet’s CEO, said Tuesday that the industry will survive without a federal subsidy that expires this month.

The founder of the world’s largest ethanol company said Tuesday that the industry will survive without a tax credit that costs the federal government more than $5 billion a year.

The subsidy expires Dec. 31, and Poet LLC founder and CEO Jeff Broin credited it with helping the industry become increasingly efficient and able to stand on its own.

“Ethanol is now able to compete with gasoline without a tax break,” said Broin, whose Sioux Falls-based company operates 27 ethanol plants, including four in Minnesota.

Broin, speaking to reporters on a conference call, said gas pump prices likely will rise about 4 cents per gallon when the credit goes away. Congress has not acted to renew the subsidy, which has existed in some form since 1978.

The federal subsidy is known as the blender’s credit because it goes to oil companies and others that mix ethanol with gasoline.

The break on the federal fuel excise tax has changed repeatedly over three decades, and is now a tax credit, worth 45 cents per gallon of ethanol. It has mainly served as an incentive to blenders to mix ethanol with gasoline, but since 2007 the use of renewable fuels has been mandatory.

Broin, who three decades ago began experimenting with ethanol making on his family’s farm in Wanamingo, Minn., said ethanol has been priced on average 16 cents below gasoline for the past three years. “Today, ethanol is so competitive that we have become a major exporter, even to Brazil,” a leading producer of ethanol from sugar cane, he said.

Poet, formerly known as the Broin Cos., built and still operates plants across the Midwest, including ones in Bingham Lake, Glenville, Lake Crystal and Preston, Minn. Most of the plants are locally owned.

Broin urged Congress to continue supporting the 2007 renewable fuel standards, which mandate that blenders and oil companies mix renewable fuels like ethanol. “The road to the pump still goes through our competitor, the oil industry,” he said.

Cellulosic ethanol, made from non-food plants such as cornstalks, also needs continued government support, he added, including a production credit set to expire at the end of 2012 and loan guarantees for new production plants.

Poet plans to build a $250 million cellulosic ethanol plant in Emmetsburg, Iowa, next to its existing corn-ethanol plant, a project helped by a $105 million Energy Department loan guarantee.

The plant, which Broin said will open in 2013, also is counting on the production credit, though he wouldn’t say how many years it will need federal support, because “the rate of progress is very difficult to predict.”

The United States has the capacity to produce 14 million gallons of ethanol per year, and almost every gallon of gas now is a 10 percent ethanol mix. Broin warned of increased fuel prices and stifled competition if higher ethanol blends don’t become widely available at the pump.

He also expressed disappointment that Congress didn’t enact an industry proposal to replace the ethanol subsidy with a short-term program to help retailers install pumps capable of dispensing E-15 and higher blends.

“If we keep this industry stifled at 10 percent ethanol, we will see much higher oil prices at some point in the future,” he said. “I don’t know if that’s next year or five years from now or 10 years from now, but it will happen