U.S. Ethanol Tax Credit Needed for Now, Broin Says

An extended tax credit for ethanol blenders that encourages biofuel production is needed until the industry has more infrastructure to compete with oil, the head of the biggest U.S. ethanol producer said.

Money saved from an eventual phase-out of the tax credit should go to finance new equipment that would blend increasing amounts of ethanol, Jeff Broin, the chief executive officer of Poet LLC, said today at a conference in Washington.

“We can’t live without that incentive today,” he said during a panel discussion on biofuels. In the long term, “we can eventually compete with oil, no question.”

A tax credit for blenders of ethanol set at 45 cents a gallon and a 54-cent-a-gallon tariff on imported biofuel are set to expire Dec. 31. Democratic Senators Dianne Feinstein of California and Ben Nelson of Nebraska said the measures are included in the tax-reduction package being debated in Congress.

Feinstein was among a bipartisan group of 17 Senate opponents of the tax credit who sent a letter to congressional leaders late last month arguing that a five-year extension would be too costly at $31 billion.

Smithfield Sees Reduction

Smithfield Foods Inc. Chief Executive Officer C. Larry Pope said today he believes the subsidy for corn-based ethanol will be reduced, if not eliminated.

“It looks like the credit’s going down” in cost, Pope said on a conference call with analysts. The Smithfield, Virginia-based company is the world’s largest pork processor and feeds corn to its hog herd.

“All the pressure on ethanol appears to be reduction, reduction and elimination,” he said. That would be good for meat producers, Pope said.

“For the first time ever, it appears that people are looking at the impact of ethanol in various sectors of this economy and the environment and the pressures associated with the budget,” he said.

The price of corn, the largest U.S. crop, has risen 39 percent this year on increased demand for exports and biofuels. Producers of corn-based ethanol including Archer Daniels Midland Co. and Valero Energy Corp. will use a record 4.8 billion bushels in the year ending Aug. 31, according to the U.S. Department of Agriculture. That’s more than a third of this year’s estimated crop and up 5.1 percent from the previous year.

Mandated Use

U.S. refiners are required to use 12 billion gallons of renewable fuels such as ethanol this year and 15 billion gallons by 2015 under a 2007 energy law.

Poet, based in Sioux Falls, South Dakota, and companies including Verenium Corp. and BP Plc are investing in developing commercially viable cellulosic fuel, which can be made from grasses and farm waste, while the bulk of the alternative- energy source continues to come from corn.

The U.S. had 204 ethanol plants operating or under construction with total capacity of more than 13.7 billion gallons as of Nov. 11, according to the Renewable Fuels Association, a Washington-based trade group.

To contact the reporter on this story: Alan Bjerga in Washington at abjerga@bloomberg.net.

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.

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