U.S. needs more incentives to use ethanol: industry

By Chris Baltimore

WASHINGTON (Reuters) - The idea of U.S. energy independence is now a myth, but could become a reality if U.S. lawmakers find ways to expand demand for fuels blended from home-grown sources like corn and give automakers incentives to make cars that burn on them, a top U.S. ethanol industry trade official said on Tuesday.

"We really need to have a comprehensive policy to get there," said Monte Shaw, president of the Iowa Renewable Fuels Association, speaking at the Reuters Global Biofuel Summit in a telephone interview.

Biorefineries produced about 5 billion gallons of ethanol last year, well on the way to the U.S. target of using at least 7.5 billion gallons of renewable fuels annually by 2012.

The administration and many U.S. lawmakers want to require U.S. fuel blenders to use even more ethanol in coming years, but lawmakers need to look at the demand side of the equation, Shaw said.

That includes possible incentives for automakers to produce more dual hybrid vehicles that can run on both electricity and gasoline, and making hybrid vehicles that can also burn gasoline with ethanol, Shaw said.

The government should also consider incentives to build an ethanol pipeline from the Midwest to the East and West coasts, Shaw said.

Shaw said that U.S. ethanol blenders should continue to receive a 51 cent per gallon tax credit despite soaring ethanol use, and linked the subsidies to the U.S. military presence in the Middle East.

"I'd be very happy to give up the tax incentive for ethanol the day that the aircraft carrier battle groups leave the Middle East," Shaw said.

The U.S. military presence in the Middle East has kept the so-called "risk premium" for crude oil prices lower, and with higher crude oil prices "ethanol would compete very nicely" with gasoline blended from crude oil, Shaw said.