Loss of federal incentives could hurt cellulosic ethanol development

Source: Robert Pore • Grand Island Independent  • Posted: Wednesday, December 14, 2011

Nebraska’s ethanol industry could be adversely impacted if Congress doesn’t extend key tax incentives, especially those for cellulosic ethanol, a Nebraska Ethanol Board official said.

The incentives that the Advanced Ethanol Council (AEC) and other groups are seeking to extend are designed to help the cellulosic ethanol industry, especially the Cellulosic Biofuels Producer Tax Credit and the Special Depreciation Allowance for Cellulosic Biofuel Plant Property. They are set to expire on Dec. 31.

Steve Sorum, ethanol project manager for the Nebraska Ethanol Board, said if the tax incentive for cellulosic ethanol expires at the end of the month, “it has the potential to stop alternative ethanol production in its tracks.

He said cellulosic ethanol hasn’t developed at a rate that will allow it to be competitive at this point.

“While people still talk confidently about it, it is a ways off, and without some sort of buffer to help them get past the price situation, it will be impossible to get money to build the facilities,” Sorum said.

According to AEC Executive Director Brooke Coleman, these tax incentives “are vital to the ongoing development of the domestic advanced ethanol industry. To ensure stability in the marketplace, and prevent unnecessary job losses, Congress should provide long-term extensions of these provisions (five-plus years).”

Sorum said ending the subsidy “could be significant.”

For example, he points to Abengoa Bioenergy, which has a cellulosic ethanol pilot plant in York. The company is also constructing a commercial-scale biorefinery to produce renewable liquid fuel from organic feedstock sources — plant fiber, or cellulosic biomass — in Kansas.


“It is still difficult, economically, as the cost of production still ranges, by most estimates, from $4 to $4.50 per gallon,” Sorum said. “There is a critical need for some federal or even state assistance that can them get past that price differential and get that product into the market.”


When Congress passed the renewable fuels standard in 2006, a goal was set to produce 36 billion gallons of domestic renewable fuels by 2022. Ethanol from corn was to provide 15 billion gallons with cellulosic ethanol and other renewable fuels to provide the remainder. While it is estimated that the U.S. will produce 14 billion gallons of ethanol this year, cellulosic ethanol has yet to get off the ground.


Sorum said the corn ethanol industry could reach that 15 billion-gallon cap next year.


“Nebraska producers and the entire ethanol industry are looking at bumping up against the cap of the renewable fuel standard real quickly,” Sorum said.


Because of the renewable fuel standard, Nebraska’s economy could see a $7 billion to $8 billion bump from just corn production this year because of higher corn prices and production at more than 1.5 billion bushels. According to the Nebraska Ethanol Board, there are 25 ethanol production plants in Nebraska, requiring 818 million bushels of grain.

Because of high gas prices this year, ethanol producers have had a good year financially, as wholesale ethanol prices are tied to gasoline prices, Sorum said.

But while gasoline prices are high, gasoline consumption is in its fourth year of decline in the U.S. Americans will consume about 135 billion gallons of gasoline this year

As new ethanol biorefineries are beginning construction, the AEC emphasized the importance of consistent federal policy.

“The advanced and cellulosic biofuels industry is now in the process of building new plants, innovating existing production facilities with emerging technologies and introducing new product streams that will allow the renewable-fuels sector to become more profitable, diversified and efficient,” Coleman said.

He said several billion dollars have been invested in advanced biofuels development with the expectation that Congress will stay the course with regard to its commitment to the industry.

“A tax increase on advanced biofuels at this time would curtail investment and undercut an industry just starting to close deals and break ground on first commercial plants,” he said.