Say Goodbye to U.S. Ethanol Tax Breaks and Tariffs

On Saturday, the United State's tax credit and tariff on ethanol is set to expire, and that makes Brazilian ethanol producers and sugarcane growers very happy.

For the past three decades, Brazil has waited for U.S. lawmakers to discontinue their protectionist policies against foreign imports of ethanol. On Dec. 31, ethanol blenders in the United States will no longer be eligible for a 45-cent-per-gallon tax incentive for producing ethanol-blended gasoline. The country's federal 54-cent-per-gallon tax on foreign imports of the bio fuel will also expire, which as the Brazilian Sugarcane Industry Association said this month, opens the world's largest fuel consumer to ethanol imports -- from Brazil.

The raw materials used in ethanol production should be evaluated strictly on the quality and sustainability of the ethanol they provide, not with political or protectionist criteria favoring country-specific feedstocks without regard for efficiency, said Marcos Jank, president of the Brazilian sugarcane association, in a statement. What should matter ahead of all other considerations is the lowest possible use of fossil energy to produce as much clean, renewable energy as possible, while reducing emissions that lead to global warming.

Jank said the tariff was designed to specifically keep Brazilian ethanol out of the U.S. market.

Jon Holzfaster, a member of the National Corn Growers Association Board of Directors, told the International Business Times that the tariff and the tax break was put in place at a time when the ethanol industry in the U.S. needed the added stability and incentive.

The tariff was intended to prevent domestic ethanol blenders from reaping tax credits by blending gasoline with foreign ethanol, Holztaster said.

Holzfaster, who farms 500 acres of corn in Paxton, Nebraska for both ethanol and feedstock production, said he is not worried about the loss of the tax break or the tariff, and that the industry in the United States has matured to such a point the tax breaks have run out their usefulness.

He said though he acknowledges his farming operation is indirectly affected by the tax credit, which specifically benefited ethanol blenders, he did say there has been an artificial demand for corn recently as blenders try to produce as much ethanol as possible before the tax credit expires.

He said he suspects the production rush will cause an artificial drop in demand as the ethanol hits the market.

Any time there is a disruption, you have to brace yourself for whatever ripples will come down the market chain, Holzfaster said. That might take a few weeks for the market to work through. It might be an unnoticeable ripple or it might be a wave.

Holzfaster said he is confident the market will self correct no matter what happens come Dec. 31, and that the market will not panic. Then again he's been wrong before.

I sure hope the market doesn't prove me an idiot, Holzfaster said.