History of the Ethanol Subsidy The Volumetric Ethanol Excise Tax Credit ethanol subsidy became law on Oct. 22, 2004, when President George W. Bush signed the American Jobs Creation Act into law. Included in that piece of legislation was the Volumetric Ethanol Excise Tax Credit.
The initial bill gave ethanol blenders a tax credit of 51 cents for every gallon of ethanol they mixed with gasoline. Congress reduced the tax incentive by 6 cents per gallon as part of the 2008 Farm Bill.
According to the Renewable Fuels Association, gasoline refiners and marketers are required to pay the full rate of tax, which is 18.4 cents per gallon on the total gasoline-ethanol mixture but can claim the 45 cents per gallon tax credit or refund for each gallon of ethanol used in the mixture.
The ethanol subsidy benefits multibillion-dollar integrated oil companies such as BP, Exxon, and Chevron.
The First Ethanol Subsidy
The Energy Policy Act of 1978 was the first federal legislative ethanol subsidy. It allowed for a 40-cent tax exemption per gallon of ethanol, according to Purdue University.
The Surface Transportation Assistance Act of 1982 increased the tax exemption to 50 cents per gallon of ethanol.
The 1990 Omnibus Budget Reconciliation Act extended the ethanol subsidy to 2000 but decreased the amount to 54 cents a gallon.
The 1998 Transportation Efficiency Act of the 21st Century extended the ethanol subsidy through 2007 but reduced it to 51 cents per gallon by 2005.
Bush's signature on the Jobs Creation Act changed the way the modern ethanol subsidy worked. Instead, it offered a straight tax credit to producers, the legislation allowed for the "blender's credit."