The House Ways and Means Committee has been urged to extend tax incentives for ethanol production and expand them to an ethanol-based octane enhancer.
Most of a hearing on ethanol centered on whether Internal Revenue Service should extend the credit to the octane enhancer ethyl tertiary butyl ether (ETBE).
Currently, gasohol containing at least 10% alcohol is taxed at 31/3/gal vs. 9/gal for gasoline. There is a similar reduction for diesel and other fuels with alcohol.
Also, other fuels consisting of at least 85% alcohol are taxed at 3/gal rather than 9, or producers may claim an income tax credit of 40-60/gal. The credits are due to expire in 1992.
Rep. Byron Dorgan (D-N.D.) and 14 other congressmen have filed a bill to extend the ethanol credit and expand it to ETBE.
The Treasury Department estimates the credits and exemptions cost the federal government $482 million in lost revenues in fiscal 1988. Extending the credit will cost the Treasury $5.5 billion from fiscal 1993 through 2000.
Kenneth Gideon, assistant Treasury secretary, said the administration has not decided whether tax incentives for alcohol fuels production should be continued beyond fiscal 1992, although there are "preliminary indications that some of these incentives may not be cost effective."
He said ethanol used to produce ETBE should be eligible for the exemption. ETBE, not commercially available, results from a chemical reaction of ethanol and isobutylene with a catalyst.
NEED CITED
Renewable Fuels Association said, "ETBE has the potential of opening major new markets for ethanol because it can be blended at refineries and shipped through common carrier pipelines.
"In addition, ETBE can actually reduce the volatility of the base gasolines with which it is blended. It promises to be a valuable supplement to 10% ethanol blends and a natural competitor to the only ether based oxygenate available today, methyl tertiary butyl ether (MTBE).
Kit Kloeckl, ethanol marketing manager for Farmers Union Central Exchange Inc., St. Paul, said 15% of U.S. gasoline is blended with MTBE.
He said ETBE has several advantages over MTBE: It is produced domestically, results in volume shrinkage of only 9% vs. 13% for MTBE, has a higher octane rating, and is less volatile.
He noted MTBE sells for less than 30/gal and ETBE cannot compete with MTBE under current market conditions, even if the blender's credit is extended to ETBE.
ETBE eventually may capture as much as 35% of the domestic ethers market, depending on world petroleum prices, he said.
Richard White, vice-president of marketing for Marathon Petroleum Co., said that "ethanol has enjoyed uniquely generous federal support over the last decade. Ethanol alone benefits from a federal motor fuel excise tax exemption, is granted a special waiver from gasoline volatility regulations, and is protected from foreign competition by a restrictive tariff on imports.
"Unfortunately, fuel ethanol is more dependent on subsidies today than when the federal gasohol excise tax exemption went into effect 11 years ago.
"Though ethanol supplies only 9.8% of national gasoline demand, the federal excise tax exemption now costs almost $500 million/year. And the need for subsidies will continue indefinitely, as the Department of Agriculture has concluded that crude oil would have to sell for at least $40/bbl for ethanol to compete without subsidies."
Copyright 1990 Oil & Gas Journal. All Rights Reserved.
