Senators Feinstein, Gregg, Bingaman, Collins, Cantwell and Martinez Introduce Bipartisan Measure to Reduce Tariffs on Imported Ethanol in Effort to Help Lower Gas Prices
Mar 18 2009
Washington, DC – U.S. Senators Dianne Feinstein (D-Calif.), Judd Gregg (R-N.H.), Jeff Bingaman (D-N.M.), Susan Collins (R-Maine), Maria Cantwell (D-Wash.) and Mel Martinez (R-Fla.) have introduced a bipartisan measure to reduce the tariffs on imported ethanol. This would enable U.S. refiners to purchase cheaper and more environmentally-friendly ethanol from foreign sources.
Here’s why this legislation is necessary: the enacted 2008 Farm Bill lowered the ethanol blender subsidy from 51 cents to 45 cents per gallon. At the same time, the Farm Bill left in place two tariffs on imported ethanol: a primary tariff set at 2.5 percent of the transaction price; and a secondary tariff, fixed at 54 cents per gallon. This change created a real barrier to trade on foreign ethanol imports, ranging between 11-13 cents per gallon, depending on the wholesale price of ethanol on a given day. This means that gasoline imports are favored over ethanol imports.
The measure (S.622) would ensure parity between the ethanol blender subsidy and the two tariffs on imported ethanol. Specifically, it would require the President to lower the ethanol tariff at least 11 cents per gallon within 30 days of enactment.
Senator Feinstein said: “The current real trade barrier on sugar-based ethanol imported from Brazil and other foreign sources gives gasoline imports a competitive advantage. I believe this makes no sense – particularly given our nation’s continued addiction to oil imported from the Middle East and other hot spots, as well as the volatility of global markets for the fuels we put in our cars. This legislation provides a sensible policy fix. It lowers the tariffs on imported ethanol to a level at or below the 45 cent ethanol blender credit – while ensuring that foreign ethanol suppliers neither benefit from the ethanol subsidy nor are penalized by artificial barriers to trade.”
Senator Gregg stated, “Our nation faces significant challenges as we look to meet our current energy needs, while at the same time, search for alternatives to help boost domestic supplies and become more energy independent. Renewable fuels and ethanol can be part of this solution. Unfortunately, the 54-cent per gallon tariff on imported ethanol puts states outside the Midwest, especially New Hampshire and other coastal states, at a disadvantage since ethanol cannot be shipped through the country’s existing pipelines. At a time when we are transferring billions of U.S. dollars to Venezuela and other hostile parts of the world that supply us oil, expanding access to inexpensive, plentiful ethanol from Brazil and other friendly nations is a better alternative. This bipartisan legislation offers a reasonable solution that lowers the tariff on ethanol, keeping prices more affordable for American consumers and steering us in the direction of more affordable energy alternatives.”
Senator Collins said: “The tariff on imported ethanol is an unfair barrier to affordable, environmentally-friendly alternative fuels. Since passage of the 2008 Farm Bill, the imported ethanol tariff is now higher than the domestic blender credit it is meant to compensate for. Second, the tariff creates a trade barrier to ethanol produced from sources like sugarcane, which is less greenhouse-gas intensive than ethanol produced from corn.”
Senator Martinez said: “We don’t put tariffs on oil from OPEC, why do we do it for ethanol? This is about lowering trade barriers and lowering fuel costs for U.S. consumers. In my state of Florida, making ethanol more affordable will help us expand the infrastructure for transporting the product paving the way for increased domestic ethanol production.”
The measure was previously introduced by Senators Feinstein and Gregg and 11 other senators in the 110th Congress.
Background on the Ethanol Subsidy and Import Tariff
- The ethanol blender subsidy: designed to help increase production and consumption of ethanol. This subsidy is applied to both domestic and foreign ethanol. The subsidy is given to either refiners or fuel blenders when they mix ethanol with gasoline before selling the fuel to gas stations.
- The enacted 2008 Farm Bill included a provision that reduced subsidies to the ethanol industry from 51-cents per gallon to 45-cents per gallon.
- The ethanol import tariffs: established to prevent foreign ethanol producers from unduly benefiting from the ethanol blender subsidy. There are two tariffs: the primary tariff of 2.5 percent on the price of a transaction, and a secondary import tariff of 54-cents per gallon.
- The enacted 2008 Farm Bill left the secondary tariff on the importation of imported sugar-based ethanol, which is more climate-friendly, at 54-cents per gallon.
- This results in an 11 to13-cent real barrier to trade.
What does the Feinstein-Gregg bill do?
- Mandate that that the combined tariffs on imported ethanol could not be set higher than the ethanol blender subsidy.
- So in effect, the legislation would lower the tariffs on imported sugar-based ethanol from Brazil to 45-cents per gallon – the same as the ethanol subsidy.
- This would ensure that foreign ethanol neither benefits from the ethanol subsidy, nor is penalized by an 11 to 13 -cent barrier to trade.
What would this accomplish?
- This would help make it more affordable for U.S. refiners to purchase imported ethanol – and in turn help lower prices at the pump.
- It would raise revenue for the Federal treasury, due to an increase in expected imports.
- And it would improve relations with Brazil, which continues to threaten WTO action against the ethanol tariff.
Background on the Renewable Fuels Standard
In 2009, refineries will be required to use 11.1 billion gallons of ethanol under the Renewable Fuels Standard (RFS).
This requirement will only increase in the years ahead, climbing to 36 billion gallons in 2022. Additionally, by 2022, 58 percent of the renewable fuel will be required to be “advanced biofuels,” which are not made from corn and produce at least 50 percent less emissions during the production, transportation, and end-use (or the lifecycle of a fuel) than gasoline.
According to the United States Department of Agriculture, Brazilian production costs for sugar-based ethanol are only 81-cents per gallon, while domestic ethanol production costs are currently above $2 per gallon.
The California Air Resources Board recently estimated that the direct greenhouse gas emissions from Brazilian sugar-based ethanol were 73 percent lower than traditional gasoline – which makes it considerably cleaner than domestic corn-based ethanol. In fact, according to the report, Brazilian ethanol emits less greenhouse gas, both directly and when indirect effects are considered, than any other transportation fuel that can be put in vehicles currently on California roads.