Friday, December 7, 2012

The future of US ethanol industry still uncertain

It has been almost a year after the ethanol tax credit expired in United States, at the end of 2011. Over the period of more than 30 years, the U.S government has provided more than $45 billion in subsidies for use of the ethanol.

The tax credit was about half a dollar for every 3.8 liters of ethanol and was intended to bolster the alternative fuel industry and decrease the need for foreign fuel import.

For many years this tax credit seemed politically invulnerable but the current U.S. economic situation characterized by deficits and debt managed to kill it, and it seems somewhat strange that U.S. ethanol industry hasn't put up a bigger fight and has in fact rather voluntarily accepted the expiration of tax credit.

It is still to early to tell whether this was the sign that U.S. ethanol industry has matured enough to survive without this key federal incentive and whether U.S. ethanol marketplace has evolved enough not to depend too much on tax benefits.

Ethanol is already 10 percent of the nation’s gasoline supply and the U.S. ethanol industry remains positive in future predictions, even despite the latest report from IEA in which it can be seen that the US ethanol production in 2012 fell to an average of around 850 kilobarells per day, 60 kb/d lower than in 2011. This, however, is mostly the result of major droughts that have had huge negative impact on corn, resulting in high corn prices, leading to reduced profits of ethanol producers.

The increased use of ethanol in United States has played significant role in keeping gasoline prices at reasonable levels. It still remains to be seen whether ethanol industry is able to stand on its own and help the nation's desire to reduce reliance on foreign oil.