End of ethanol tax credit seen boosting gas price

Source: Dan Piller • Des Moines Register  • Posted: Thursday, December 8, 2011

This week’s average price in Iowa for a gallon of gas. Prices are expected to rise by about 4 cents next year when a tax credit for ethanol blending ends.

The price of a gallon of gasoline will rise by about 4 cents per gallon after the tax credit for ethanol blending ends Jan. 1, chief executive officer Jeff Broin of Poet said Tuesday.

Broin noted that the presence of cheaper ethanol blended with gasoline lowers the pump cost to the consumer by 17 cents per gallon. This week Iowa’s average price for gasoline has been $3.18 per gallon, but most convenience stores in the Des Moines area have sold for $2.99 per gallon.

E85, or 85 percent ethanol, will rise by about 40 cents per gallon, Broin said. E85 has enjoyed a record year for sales in Iowa, and the fuel has tended to sell as much as 75 cents per gallon under the price of the 10 percent ethanol blend.

“E85 will be impacted more by the loss of the tax credit,” Broin said.

Blenders get a tax credit of 45 cents per gallon for mixing ethanol with gasoline.

Tom Kloza of the Oil Price Information Service, who monitors gasoline prices nationwide, agreed with Broin. “At the moment it disappears, the price to wholesalers and retailers does go up by 4.5 cents per gallon,” he said.

Kloza noted that gasoline futures prices vary as much as 30 to 50 cents per gallon in a month. “It’s a bit like crediting the Europeans with helping us control gasoline costs in the fourth quarter, thanks to their teetering on a debt precipice.”

Broin said the ethanol industry now is mature and will be able to withstand the loss of the tax credit. Broin and most of the ethanol industry bowed to political realities and put up little resistance to the loss of the three-decades-old credit that went to refiners, pipelines and wholesalers, not ethanol producers.

But Broin said: “We can’t afford to go backward on the Renewable Fuel Standard,” which in 2012 will mandate the use of more than 13 billion gallons, or about 10 percent of total gasoline use in the U.S.

“Ethanol still has to go through our competitors in the oil industry,” Broin said. He suggested that industry has been behind efforts to not only soften the Renewable Fuel Standard mandate but also hobble efforts to get government help for funding for new blender pumps, which would dispense higher percentages of ethanol.

With an eye toward the need to get new pumps into Iowa’s retail gasoline network, the Iowa Renewable Fuels Association, which represents the state’s ethanol and biodiesel producers, and the Iowa Petroleum Marketers and Convenience Stores on Monday announced a joint venture to explore how the two groups can work together.

“We want to work together with the convenience store organization on consumer education and how to get more E15 into the market,” said Lucy Norton of the Iowa Renewable Fuels Association.

Iowa is the nation’s leading producer of ethanol, with about 3.7 billion gallons produced at 41 plants in the state.

Ethanol production consumes about 60 percent of Iowa’s corn crop.