Taxpayer support crucial for biofuel growth

By Alden Bentley

NEW YORK (Reuters) - If the 20th century brought global dependency on oil extracted from deserts and seabeds, this could be the century of renewable fuels refined from sugar, corn, soybeans and prairie grass.

But according to executives speaking at the Reuters Global Biofuel Summit, taxpayers must subsidize the transition to biofuels and a crops-based future of energy self-sufficiency, cleaner air and prosperous farm communities, much as they built and protected the powerful oil industry, if indirectly.

Governments have seeded and talked up ethanol from corn in the United States, sugar cane in Brazil and biodiesel made from soybeans, vegetable oils and animal fats in Europe and Asia. But it's been a drop in the bucket of the money needed to make alternative fuels economically viable.

"It's going to require a fully funded mandate for the short run so we can create that fuel and that infrastructure to be able to truly take a bite out of our addiction to foreign oil," said Todd Carter, CEO of Panda Ethanol, which has ethanol plants in the Midwest powered by cow manure instead of natural gas.

Summit participants said the price of a gallon of gasoline would be at least $5 at the pump if the cost of protecting the oil lanes of the Middle East were passed directly to drivers.

"We talk about this drop in the bucket incentive for renewable, domestic produced, clean-burning biofuels but we don't ever really talk about how we had 100 years of government policy keeping crude oil prices, and therefore gasoline prices, artificially lower than they would be," said Monte Shaw, head of the Iowa Renewable Fuels Association.

President Bush conceded last year the nation was "addicted to oil." The U.S. has set a target for the country to use 7.5 billion gallons of ethanol by 2012, under the Renewable Fuels Standard, up from 4 billion gallons in 2006.

The president delivers his State of the Union address to Congress on January 23 and Washington insiders told Reuters this week that he could call for over 60 billion gallons of ethanol to be mixed into U.S. gasoline supplies by 2030.

The United States already gives a tax credit of 51 cents per gallon to refiners to use ethanol to oxygenate gasoline, replacing methyl tertiary butyl ether (MTBE), which has been phased because it polluted ground water.

Don Endres, chief executive at VeraSun, the largest U.S. ethanol company, said that $2.5 billion lost to the blenders credit was balanced by $5 billion in reduced loan deficiency payments to U.S. farmers because of the rise in corn prices.

"It was a great investment on the government's part and that doesn't account for all the additional taxes and jobs and all the extra economic activity," he said.

Washington helps domestic farmers and refiners with a 54-cent import tariff on ethanol from Brazil, which has the closest thing to a viable biofuel economy, dominated by ethanol made from sugar cane, of which it is the leading grower.

"It never ceases to amaze me, we are still considering the shift from oil to renewables through a 19th century protectionist model," Eduardo Pereira de Carvalho, president of Brazil's Cane Industry Association, said at the Summit.

Monte Shaw said a record amount of Brazilian ethanol still came into the United States this year "due to MTBE creating a giant sucking sound." That ethanol is also eligible for the blenders credit.

"If you want that money to flow out to Brazil, then you could argue 'hey let's get rid of the tariff,'" he said.  Continued...