Taxing Virtue as Sin: US Tax Rate on E85 Renewable Fuel Soars Past 100%

by Jim Lane (Biofuels Digest) The US passed a dubious and historic milestone this week. The tax rate on E85 renewable fuels now exceeds 100% in some formulations. By comparison, the tax rate on E10 renewable fuel is running at an estimated 41% and the tax rate on straight gasoline is running at an estimated 35%.

Now, the idea of a carbon tax is that governments are supposed to collect more tax against high-carbon fuels. Yet, policy in practice works the other way. The less carbon you consume, the higher percentage tax you pay.

The amazing news is that E85 fuel is available on a wholesale basis for 55 cents per gallon from The Andersons. Absolute Energy is not far behind, at $0.60 per gallon .On a wholesale mile-for-mile energy cost (BTU) basis, E85 is less expensive now than either straight gasoline or CNG (compressed natural gas), despite the collapse in oil & gas prices over the past 18 months.

In fact, E85 on a wholesale basis is up to 51% less expensive on a mile-for-mile basis, compared to gasoline.

How did a lower-carbon fuel that was 51% cheaper at wholesale become only 5% cheaper at retail?

Your eyes can quickly do the math that there’s something like $0.56 in taxes per gallon, which means that E85 customers pay $0.78 in taxes per gasoline-gallon equivalent (GGE). And that means that, as fuel prices drop and the tax component (which is fixed) becomes a bigger part of the cost of fuel, it becomes almost impossible for renewable fuels to beat out gasoline on price, entirely due to tax policy.

Boy, are fuel marketers making out like bandits with E85. The mark-up from wholesale to retail, even after subtracting taxes, is 107%. Margins that even high-end brand marketers would be delighted with.

If you concluded that the overall impact of national E85 policy is to disincentive E85 through high taxes, and offer massive margins to the value chain (while denying value to the corn farmer, the E85 refiner, or the end-user), you would find real support in the hard data.

The solution is not too hard, from a tax POV. Simply do what is done with Compressed Natural Gas and tax everything on a GGE (gasoline gallon equivalent) basis. READ MORE