4 Areas with Potential to Shape the Ethanol Industry
By Donna Funk, CPA, Pinion
The 2024 election is finally in the rear-view mirror. Ethanol producers are now evaluating how election results will affect our industry. With President Trump returning to the Oval Office and a Congress that seems favorably inclined toward biofuels, the stakes are high. We provide perspective for four areas that will shape the future for renewable fuels.
Presidential Influence
President Trump’s ethanol track record is mixed. His first administration sought to make E15 sales year-round, but also issued waivers allowing oil refiners to bypass biofuel blending mandates. His appointment of Lee Zeldin, who has a history of opposing policies favorable to biofuels, to head the EPA, further tempers expectations.
Congressional Outlook
On the other hand, the legislative branch is promising. Congressional leadership comes from top ethanol-producing states. Senator John Thune of South Dakota, a major ethanol-producing state, now leads Senate Republicans and has been a vocal advocate for renewable fuels. Additionally, Senator Amy Klobuchar (D-MN) will lead the Democrats on the Senate Agriculture Committee, bringing a strong pro-ethanol stance. In the house, GT Thompson (R-PA) will continue as Chair of the House Agriculture Committee and has long been a reliable champion for agriculture while Angie Craig (D-MN), another supporter of biofuels, will be the ranking Democrat on the Committee.
Legislative Priorities and Tax Policy
Central to the industry’s focus is the preservation of beneficial policies included within the Inflation Reduction Act (IRA) of 2022 and The Tax Cuts and Jobs Act (TCJA) of 2017. The IRA includes Section 45Z, the Clean Fuel Production Credit, which offers significant tax incentives for the production of clean fuels. While Trump has indicated intentions to repeal the IRA’s clean energy provisions, there is pushback from ag state legislators who see 45Z as beneficial to their constituents.
However, there was frustration from some House conservatives that year-round E15 was authorized in the original draft of the year-end government funding bill. While year-round E15 was eventually stripped out of the final funding bill, some of the same members upset over its initial inclusion have vowed to pay for tax reform by repealing green tax credits. With a small GOP House majority, Republicans on both sides of this debate will have considerable sway.
Key provisions include:
- Bonus depreciation
- Qualified business income deduction
- Increased estate and gift tax exemptions
The TCJA also contained some less-than-favorable changes like reduced expensing for research and development – a change that both Republicans and Democrats have expressed a willingness to address.
Trade Concerns and Global Markets
Trade remains a critical issue for the U.S. biofuels industry, which is on track for record exports in 2024. Free trade agreements have boosted U.S. biofuels exports to five of our top 10 ethanol destinations. During his first term, Trump aggressively implemented tariffs on adversaries and allies alike. He has proposed universal tariffs, including a 60% tariff on Chinese imports and blanket tariffs against Canada and Mexico.
Like in his first term, these actions could provoke retaliatory measures. Given that Canada is the top importer of U.S. ethanol, any retaliatory tariffs could adversely affect U.S. ethanol exports. Meanwhile, competitors like Brazil are increasing their ethanol exports, potentially decreasing demand for U.S ethanol.
The Path Forward
Despite some problematic policy proposals, Trump’s reliance on farmer support may moderate implementation. With backing from bipartisan Congressional leadership, it’s essential that the ethanol industry remains proactive, ensuring that federal policy continues to support a robust market for U.S. biofuels.