Washington (Platts)--17Oct2011/316 pm EDT/1916 GMT

With the tax credit for ethanol due to expire at year's end, ethanol backers have formed a new coalition to raise funds for a lobbying campaign to amend the federal tax law, but only for E85.

The group, the Coalition for E85, is not looking to extend the life of the tax credit for E10 fuel, which is now widely distributed throughout the US. It says it is prepared to sacrifice that subsidy in order to get taxpayer underwriting for the development of E85, a blend of 85% ethanol and 15% unleaded.

Currently, fuel blenders receive a 4.5 cents/gal tax credit for E10 and a 38.25 cents/gal credit for E85 under the Volumetric Ethanol Excise Tax Credit (VEETC), which expires in December.

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Under the VEETC, the 14 billion gallons of ethanol used in E10 cost approximately $6.3 billion a year, while the subsidy for the 120 million gallons in E85 cost about $54 million a year.

The Energy Policy Act of 1992 defines E85 as an alternative fuel, but the blend does not qualify for the alternative fuel credit under the Internal Revenue Code. It was excluded to avoid any instance where ethanol would receive both the VEETC and the Alternative Fuel Credit.

However, with the possible expiration of the VEETC, the question of ethanol double-dipping should no longer be an issue, the coalition contends. It wants E85 to be eligible for a tax credit, which should be extended into 2012 and then for another five years, it says.

The coalition says it represents retailers, ethanol producers, and equipment and automobile manufacturers. It is fronted by veteran ethanol advocate Phil Lampert. Its goal is to raise an initial $75,000 to pay well-known Washington lobbying firm Van Scoyoc Associates to advance its agenda in Congress, according to a letter it sent out soliciting funds.

The coalition says $75,000 is "the minimum level needed to pay for the government relations effort," according to the letter. For the money, Van Scoyoc has agreed to mount an "intensive" three-month campaign.

In October, it will develop "a unified message," draft a policy paper and communications materials, and meet with members of Congress and their staffers. In November, it will draft language for a bill and request a revenue estimate. It hopes to get the measure included in any tax extenders package that Congress approves by December, the letter says.

More than 60 different tax extenders are due to expire at the end of 2011. The coalition believes Congress will try to deal with the issue in late 2011 or early 2012. Even if Congress allows most of the key extenders to expire, the coalition believes its lobbying campaign will lay the groundwork for Congress to retroactively extend the ethanol credit, the letter says.

"The ethanol industry has reached a consensus that the sale of E10 will continue absent the existing incentive," according to the coalition. "However, sales of E85 will be dramatically impacted with the loss of the VEETC, as E85 requires the incentive to allow motorists to achieve a competitive price of a gasoline gallon equivalency to regular unleaded gasoline."

"Failure to preserve the E85 option may negatively impact the future sale of other mid-level ethanol blends, such as E30," the coalition claims in its letter. PETROLEUM MARKETERS WILL JOIN COALITION

Meanwhile, the Petroleum Marketers Association of America, a trade group representing gasoline wholesalers and retailers, has decided to join the coalition.

"While $54 million seems like a lot for 2,500 dispensers, the greater concern probably has to be the entire Flex Fuel Vehicle program," said PMAA president Dan Gilligan. "Ford, GM and Chrysler have been manufacturing millions of FFVs in cooperation with the U.S government with the specific policy goal of having E-85 as an alternative to gasoline. If the ethanol tax credit is not extended for E-85 blending, the entire FFV program might die. Auto manufacturers might simply quit making FFVs."

Flex fuel vehicles can burn E85 as well as gasoline.

In a legislative white paper, the coalition acknowledges that only 1% of ethanol is sold as E85 in the US, but believes the fuel will play an increasing role under the volume requirements of the federal Renewable Fuel Standard.

If the tax credit isn't extended, 9 million drivers of flex-fuel vehicles will pay as much as 38 cents/gal more and small businesses could be forced to "close their pumps," according to a press release drafted by Van Scoyoc Associates.

According to a report by the Energy Information Administration, E85 was being sold at only 2,454 stations as of September 30 this year. That would put the cost of the $54 million incentive for the fuel at roughly $22,000 per dispenser, assuming one pump per station.

Most of the E85 stations are concentrated in the Midwest. The largest number is in Minnesota, with 362 outlets. Thirteen states have between 1 and 10 sites, while six states have none at all.

Other members of the Coalition include E85 supporters Propel Fuels, Protect, Bosselman Biofuels, the Nebraska Ethanol Board, Clean Fuels Development Coalition and the Nebraska Ethanol Industry Association.

--Carol Donoghue, newsdesk@platts.com

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