A story in USA Today caught my attention this week because of its topic -- Congress did not renew the three-decade-old subsidy for ethanol, saving an estimated $6 billion a year. The subsidy expired on Dec. 31, 2011. There were very few ripples from the ethanol industry over the demise of the 45-cent-per-gallon subsidy. As the Renewable Fuels Association noted, “. . . the tax credit that long served as the boogeyman for anti-ethanol interests has expired.” The association stated, “Without protest, U.S. ethanol producers allowed the $0.45-per-gallon tax incentive for ethanol blending to expire. The offsetting secondary tariff on imported ethanol will also expire. The domestic ethanol industry has evolved, policy has progressed, and the market has changed making now the right time for the incentive to expire. “Ethanol producers never intended for the tax incentive to be permanent. Like all incentives, it was put in place to help build an industry and when successful, it should sunset. Unfortunately, the same mentality does not extend to century-old tax subsidies supporting 20th century petroleum technologies,” the association added. Ethanol makes up 10% of the U.S. gasoline supply, which means that much foreign oil is replaced. That’s a definite benefit to the U.S. balance of payments and deficit. If you were buying E-10 fuel, then gasoline would cost an additional 4.5 cents per gallon without the subsidy. It remains to be seen whether or not gas prices will go up. It likely won’t have much impact in Oklahoma, for example. For quite some time, the service stations and convenience stores in the state have advertised 100% gasoline with no ethanol on the gasoline pumps. In states with air emissions problems, there will still be demand for ethanol. After all, ethanol got a big boost when methyl tertiary butyl ether (MTBE) had to be replaced as an oxygenate in gasoline. It is still required as an oxygenate. After 30 years, it is time to see if ethanol can stand on its own merits as a fuel. If an industry is not viable without subsidies, then it will continue to be a drain on government coffers. And, there are other consequences to fuel subsidies -- just ask Nigeria, India or Indonesia, for examples. Each time the government attempted to allow fuel prices to increase to market rates, riots ensue. Now the ethanol industry gets to stand on its own two feet and compete with -- or cooperate with -- the refining industry in meeting fuel standards. It’s a game worth playing. Speaking of level playing fields, have you ever wondered why the market for LNG-powered trucks has been slow to develop? You might ask the Internal Revenue Service (IRS). In August 1995, the IRS ruled that LNG (liquefied natural gas) is a liquid fuel and would be taxed as a “special motor fuel.” Even though LNG goes into the engine cylinders as a gas, the IRS said it was a liquid. Non-liquid fuels that substitute for gasoline and diesel, such as compressed natural gas, were taxed at 5.9 cents per gallon, while liquid substitutes were taxed at 18.4 cents per gallon. The IRS concluded that since the Omnibus Budget Reconciliation Act of 1993 made no specific provision on the LNG tax rate, LNG would be taxed as a liquid. I never heard if this particular ruling was ever changed, but I doubt it. There was an opportunity to provide impetus to boost use of LNG in long-haul trucks, and the IRS used its interpretation of the law to squash it. Now, 16 years later, there is all of this excitement for using LNG in long-haul trucks. Maybe it’s a good time to revisit the IRS tax ruling and support something that would lower dependence on foreign oil, boost domestic natural gas demand and lower fuel costs for truckers. But, that would probably make too much sense for the government. Contact the author, Scott Weeden, at sweeden@hartenergy.com.