Ethanol Ad Wars: Corn Takes on Sugarcane in a Battle Over Tariffs and Tax Credits

The corn-ethanol trade group Growth Energy's $2.5 million "Just the Facts" ad campaign pushes its members' product as the go-to domestic fuel source and a cleaner, more economic and "peaceful" alternative to foreign oil. But oil is just part of corn ethanol's problem. In fact, the PR push is really about Brazil's sugarcane ethanol, a fuel that's cheaper and cleaner than corn ethanol.

Specifically, the ads are part of corn ethanol's push to extend tax credits and a tariff on imports that keeps sugarcane ethanol out of the U.S. Corn-ethanol producers also want changes in federal law so that their product counts as an advanced biofuel -- which would favor it as refiners and other producers meet federal requirements for using renewable fuels.

Corn and can ethanol have squared off over the tariff issue before. But it's never been so public and the stakes -- especially for corn -- have never been so high. Which is why you're about to be inundated with pro-corn ethanol ads for the next six months.

(On a side note: POET, one of the largest U.S. ethanol producers, also launched its own ad campaign this week. POET's President and CEO Jeff Broin is co-chairman of Growth Energy, along with Gen. Wesley Clark.)

At issue is a 45-cent-per-gallon blender's tax credit, known as VEETC; and the 54-cent-per-gallon tariff on imported ethanol (plus, an additional 2.5% tariff on the value of the imported ethanol). And it just so happens that both the tariff and the tax credit are set to expire at the end of the year. Unless, that is, Congress gets busy and approves an extension.

Corn ethanol would also really like to qualify as an advanced biofuel. The industry's best chance of making that happen will be to convince lawmakers to include language in a Senate climate-change bill that would give corn ethanol the more desirable status. UNICA, the Brazilian sugarcane ethanol trade group, noting the opportunity in all of this, launched its own "Sweeter Alternative" print, online and radio campaign this week.

The corn ethanol industry's biggest fear is that sugarcane ethanol will displace corn absent the tariffs that price it out of the U.S. market. To qualify as a renewable fuel -- the bare minimum for biofuels -- in the U.S. it must emit 20 percent less in the way of greenhouse gases than gasoline throughout its entire lifecycle. That means everything emitted from its early days as a crop to its final days in the fuel tank. Corn ethanol produced in a natural gas facility (barely) meets the 20 percent renewable fuel standard. Sugarcane qualifies as an advanced biofuel because its emissions are 50 percent lower than gas or diesel. And sugarcane is cheaper.

Over the next decade, federal mandates call for a greater use of advanced biofuels. If corn ethanol can't pull itself into the advanced biofuels category, producers of the fuel will be left behind as refiners seek out other alternatives. The sugarcane ethanol industry would love to fill the gap. Question is, whether corn can convince Congress and the public that it's better to keep a cheaper, clean alternative out of the U.S.

A few tariff and tax credit facts:

• The blender's 45-cent-per-gallon tax credit doesn't go to ethanol producers. It goes to the refiners that supply and market gasoline.
• Small ethanol producers also receive 10-cent-per-gallon ethanol tax credits.
• Technically, both corn and sugarcane qualify for the blenders tax credit. Under normal circumstances refiners would have a choice between the cheaper sugarcane ethanol and corn ethanol.
• The 54-cent-per-gallon tariff is meant to offset the blender's tax credit; and keep sugarcane ethanol out of the U.S. and from accessing the taxpayer-funded credits.
• Last week, the Brazilian government ended the country's 20 percent ethanol tariff until Dec. 31, 2011.