US ethanol makers can compete with their oil counterparts after the 45 cents/gal ethanol blender's tax credit expires at year-end, said Jeff Broin, CEO of producer Poet, during a conference call Tuesday.
"Ethanol is now able to compete with gasoline without a tax break," said Broin, adding that ethanol prices have averaged about 16 cents/gal below gasoline over the last three years. On Monday, Platts assessed Chicago spot conventional gasoline at $2.5383/gal versus Chicago spot ethanol at $2.4825/gal. The price of ethanol has averaged about 15.25 cents/gal below conventional so far this year, although ethanol has crept above conventional at some points.
"Over the last 30 years the industry, to improve profitability, became increasingly more efficient as the tax credit was decreasing," including lowering the use of water and energy in the process while increasing yields, he said.
"That's the significance of this transition, that it won't have a significant impact on this industry," said Broin, though he did say the move "could have a slight impact" on some ethanol plants' profitability.
The lack of a tax credit will mean that prices to consumers rise by about 4.5 cents/gal for a 10% ethanol-gasoline blend. But Broin said ethanol mixed into gasoline lowers the fuel price by 17 cents/gal below what gasoline alone would be.
Broin did not back the expected expiry of the 54 cents/gal import tariff at the end of 2011 unless a corresponding tariff in Brazil, where most competing ethanol production comes from, is eliminated.
And he warned that a cellulosic subsidy set for end-2012 expiry should be extended as those producers work on new technologies. "Although innovators ... have made much progress over the past few years and the potential for this [cellulosic] industry is more than 80 billion gallons per year, no one is yet producing at commercial scale," said Broin.
After the blender's credit expires, ethanol demand will driven by federal mandates under the Renewable Fuel Standard and by exports markets mostly in Europe. Broin said the government needs to keep RFS targets in place. "We can't afford to go backward on our renewable fuel targets, so policymakers must maintain the Renewable Fuels Standard," he said. "The road to the pump for ethanol still goes through our competitor, the oil industry."
The final RFS mandates for 2012 are expected any day now from the Environmental Protection Agency, which was supposed to release them by the end of November.
