The 54-cent-per-gallon duty on all ethanol imported into the United States is set to expire at the end of 2008. Most affected by the tariff are the United States and Brazil. Assuring the renewal of the tariff has now become a destination point on the map of economic viability for U.S. ethanol producers, who say the recent talk of dismantling the tariff would be like shutting off the beacon just as a ship is approaching the harbor.

The industry insists the tariff must stay. Concerns began to arise in January of this year when U.S. Secretary of Energy Samuel Bodman addressed the U.S. Chamber of Commerce and hinted that changes may lie ahead. He said he believed the U.S. ethanol industry is close to being able to stand on its own. Bryan Sherbacow, chief executive officer of Ethanex Energy Inc., a Kansas-based ethanol producer, was perplexed by Bodman's statement. He says if the U.S. ethanol industry is no longer in its infancy; it is certainly no more than toddling. "This industry has not had its legs underneath itself until now—if it has them now," he says.

Sherbacow is not alone, and the producer's primary concerns is focused on the world's largest ethanol producer—Brazil. The sentiment throughout the ethanol industry is that lifting the tariff would be grossly unfair to U.S. producers and farmers. While the Brazilians argue that ethanol should be treated the same as all other fuels when it comes to imports and exports.

Integrated Environmental Technologies LLC President and Chief Executive Officer Jeff Surma, says his company has been attentive to all renewable fuel issues, and he believes the industry has some strong allies. "The biggest lobby against eliminating the import tariff, of course, is the farm lobby," he says. "They have a very strong voice."

Andy Foster, corporate spokesman for American Ethanol LLC in Illinois, says the disadvantage would be akin to a mouse fighting a gorilla. A small group of farmers from the Midwest should hardly be expected to compete with the Brazilian government, Foster says. "The Brazilian government paid for most of the infrastructure built up down there, it wasn't private industry," he says. "In order for the industry to really gain its legs and be able to compete on a worldwide basis, we can't have a friendly competitor come in from the south and bomb out the price of ethanol on us." Foster explains just how different the situations are between the United States and Brazil. "They certainly have a greater advantage in that the private companies weren't saddled with trying to figure out how to do logistics and [install] E85 gas pumps and all the rest of it—the government paid for all that," he says.

Sherbacow is concerned that the years of hard work and extensive efforts put forth to building up the ethanol industry could be undermined if the tariff were to be lifted, and now more than ever it plays a crucial role in allowing the industry to mature. "We have just made a significant investment as a country into this platform and it's immature right now—[the United States] needs more time before it can properly compete," he says. Foster agrees saying that he believes this is not the time to suddenly change course. "The government has made a commitment to the industry which is well appreciated," he says.

U.S Producers Versus the Brazilian Government
The proverbial David versus Goliath scenario that would play out if small co-ops and Midwest farmers were forced to become global contenders against an economically and financially supported competitor, in essence, a foreign government, is not the only problem U.S. producers see in their future if the tariff is removed. "[We would be] paying Brazilians to produce ethanol, because we'll have removed the tariff for bringing it into the country, yet we're crediting them or they're going to benefit from the blenders' credit," Sherbacow says.

The possibility that the tariff could be lowered or even removed compounds issues that producers already face such as the high cost of corn. All eyes are on farmers in the Corn Belt as they decide what's more profitable to plant—corn or soybeans. Corn prices could rise even higher if acres are reduced substantially. "In light of $5 corn and everything that's gone upside down in terms of the commodities markets, I think the government needs to re-authorize that (tariff)," Foster says.

Ethanol producers are also often forced to defend themselves when discussions arise about food versus fuel. Although the ethanol industry is using a greater share of the corn crop as production has increased, there are other factors to consider, including record-high fuel prices, a greater demand for food in developing countries and crop disasters in some parts of the world. Unfortunately, ethanol often shoulders much of the blame for high food prices. "There's actually more corn available this year than last year, even when you subtract the new demand from ethanol," says Don Endres, chief executive officer of VeraSun Energy Corp. "Clearly, market dynamics in addition to ethanol are at work driving corn and other commodity prices."

It's not all doom and gloom for the ethanol industry as it enjoys healthy bipartisan support on Capitol Hill. That should be a plus once debate over extending the tariff gets underway. In January, U.S. Sen. Chuck Grassley, R-Iowa, issued a strong statement in response to Bodman's suggestion. "By lifting the ethanol tariff, we'd end up subsidizing Brazilian ethanol," he said. "I can't figure out why Secretary Bodman would want to risk the United States becoming dependent on Brazilian ethanol when we're already dependent on Middle East oil. His comments really do a disservice to President Bush who has been the most pro-ethanol president we've ever had." Despite Bodman's thoughts regarding the tariff, the administration supports renewable fuels. In March, President George W. Bush addressed the International Renewable Energy Conference in Washington, D.C. Bush made it clear that it's in the best interests of this country to wean itself from foreign oil. "If there's tight supply and demand, all it requires is one terrorist disruption of oil and that price goes even higher," he said. "The vast majority of ethanol is coming from corn, and that's good. I'd rather have our corn farmers growing energy than relying on some nation overseas that may not like us."

Discussions over the fate of the tariff are expected to begin later in the year. Most U.S. producers seem to believe that the day will come when the tariff will be lifted, but simply believe now is not the time. "Status quo is what we would hope for," Foster says. "I think the whole intent behind [the tariff] was not to stifle free trade, but to give American ethanol producers a level playing field," Foster says. Sherbacow believes that the efforts of those who would want the tariff dismantled will ultimately fail.

In the meantime, U.S. producers hold no animosity toward their counterparts in South America, and they look forward to a day when imports are not subject to a tariff. EP

Timothy Charles Holmseth is an Ethanol Producer Magazine staff writer. Reach him at tholmseth@bbibiofuels.com or (701) 738-4962.