U.S. ethanol under fire in Europe

Source: PHILIP BRASHER • Des Moines Register  • Posted: Tuesday, November 29, 2011

WASHINGTON — The ethanol industry’s main subsidy is set to end soon, but that hasn’t stopped European competitors from trying to get a tax slapped on the American-made biofuel, claiming that federal and state incentives make the imported product unfairly cheap.

The European Commission has launched an anti-dumping investigation of U.S. ethanol that could result in duties being imposed on the product. At the same time, the American industry has started to saturate its domestic market and is looking increasingly to exports.

The largest subsidy for U.S. ethanol is a 45-cent-per-gallon tax credit that expires Dec. 31. However, the European Commission also is including in its investigation a series of state-level incentives, including biofuels infrastructure grants and a revolving loan program in Iowa, grants for ethanol processing plants in Illinois, and ethanol production incentives in Nebraska and South Dakota.

U.S. ethanol exports to Europe increased by 500 percent from 2008 to 2010 and are expected to double this year from 2010, according to ePURE, a European industry trade group that pressed the European Commission to pursue the anti-dumping case. The group said in a recent press release that the increase in imports of American ethanol “is the direct result” of federal and state subsidies that let the U.S. industry “adopt aggressive pricing practices on the European market.”

The European Commission previously imposed a tariff on U.S. biodiesel to offset the $1-a-gallon tax credit that subsidizes that product.

The U.S. industry has given up hope of getting Congress to renew its federal subsidy. The industry offered this summer to end the subsidy early so the savings could be used to subsidize the installation of gas station pumps that can dispense higher levels of the biofuels, but that proposal died in Congress.

“I don’t see how the EU case holds very much validity after that 45-cent tax credit goes away,” said Bruce Babcock, an Iowa State University economist who studies agricultural and energy markets. The state-level incentives on their own “amount to nothing” when it comes to driving the price of ethanol, he said. The bigger drivers of ethanol pricing would be gasoline prices and government usage mandates.

The state-level incentives cited in the EU case include grants that Iowa offers to service stations to get them to install pumps that will dispense ethanol in blends of as much as 85 percent ethanol and 15 percent gasoline. The grants will cover 70 percent of a project’s cost or as much as $50,000. The goal of the grants is to increase ethanol usage in Iowa, so it would discourage exporting the biofuel, not encourage it, said Harold Hommes, who oversees the E85 infrastructure program at the state Department of Agriculture.

“The goal in short is to increase domestic demand, consumer-driven demand. We don’t see any way that this one can be challenged,” Hommes said.

The Renewable Fuels Association, a Washington-based trade group, said that the expiration of the federal subsidy should make that part of the European case irrelevant. The group said it would “continuously monitor the status of these investigations and will take any necessary steps to ensure the U.S. ethanol industry is not unjustly penalized.”

Ethanol exported to Europe would only benefit from the 45-cent subsidy if it is first mixed with some gasoline, and then the subsidy would go to the company that did the blending, said Matt Hartwig, a spokesman for the U.S. trade group.

European ethanol producers fill about 85 percent of the continent’s demand for the biofuel, said Barry Magee, a spokesman for ePURE. The rest is from Brazil or the United States, he said.