Bill Streamlines Future for Ethanol Fuel

The Renewable Fuels Association (RFA) applauded the U.S. Senate for including an important ethanol tax modification in the highway reauthorization bill, S. 1072, which passed by overwhelming margins. The change, supported by numerous transportation and agricultural organizations, reforms the current ethanol tax structure to eliminate any negative impact on the highway trust fund (HTF).

Washington D.C. – February 17, 2004 [] By modifying the method in which federal excise taxes are collected on ethanol-blended fuels, the Volumetric Ethanol Excise Tax Credit (VEETC) would generate more than US$2 billion per year in additional HTF revenues while maintaining an important incentive for the use of renewable fuels. VEETC also extends the incentive through 2010. “The Senate sent a strong signal that sound energy policy and sound highway policy can work to the benefit of both,” said RFA President Bob Dinneen. “By including VEETC, the Senate-passed highway bill will promote ethanol use while generating roughly $2 billion in additional highway funding each year. We urge the House to also include this forward looking reform in their highway bill.” – Restoring 2.5 Cents in Excise Tax to the HTF Currently, 2.5 cents of the federal excise tax paid on ethanol-blended fuels is retained in the government’s general fund instead of being transferred to the HTF as is the case with all other fuel excise taxes. If enacted, the entire excise tax paid on ethanol-blended gasoline would be transferred to the HTF. This will add approximately $600 million to HTF revenues annually. – Improving the Ethanol Excise Tax Exemption Currently, ethanol-blended fuel is taxed at a lower rate than regular gasoline (5.2 cents on a 10% blend). If enacted, the existing ethanol excise tax emption would be eliminated, thereby allowing the full federal excise tax of 18.4 cents per gallon of gasoline to be collected and allocated to the HTF. This adds approximately $1.4 billion to HTF revenue annually. In place of the current exemption, the bill creates a new volumetric ethanol excise tax credit (VEETC) of 52 cents per gallon of ethanol blended. Refiners and gasoline blenders would apply for this credit on the same tax form as before only it would be a credit from general revenues, not the HTF. Based on volume, the VEETC allows much greater refinery flexibility in blending ethanol.
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