Senate committee considers tax incentives for alternative fuels

By Michael Famiglietti

Washington - Should the federal government increase tax incentives for those who purchase or manufacture alternative fuel technology?

That's what the Senate Finance Committee tried to figure out Thursday as five experts weighed the pros and cons for them.

Worried about the effects fuel emissions have on the environment and the United States' dependence on foreign oil, committee members seemed stumped on how to fix the problem. "America is the world's biggest oil consumer," said Sen. Max Baucus, D-Mont., the committee chairman. "And where we once led the world in oil production, America now imports two out of every three barrels of oil, often from unstable places."

Vinod Khosla, an ethanol advocate and founder of a consulting firm that also finances entrepreneurs, urged the committee to recognize what ethanol could do for the country, including reducing petroleum use and boosting rural America's economy. To encourage producers of cellulosic ethanol, which is refined from plant cells instead of corn and sugar, which is used to make regular ethanol, the government should provide a 76 cent tax credit per gallon, he said.

The credit would decline 15 cents per year starting in 2015 and expire in 2020. The Energy Policy Act of 2005 already gives a 10 cent credit per gallon for up to 15 million gallons to manufacturers of alternative fuels. That incentive expires in 2008.

It also entitles car buyers to credits ranging from $250 to $3,400 for purchasing hybrid electric cars and entitles fueling stations to a 30 percent credit toward installing clean-fuel equipment.

Sen. John Kerry, D-Mass., seemed more interested in electric cars than ethanol. He said electric cars powered by the A123 hybrid battery, which is produced in his home state, can get 150 miles per gallon. The additional cost for the battery is $3,500. "I want to give a $4,000 tax incentive for someone to buy that car," he said.

But other witnesses debated whether companies could produce them fast enough to make an impact. Bruce Dale, a professor of chemical engineering at Michigan State University, said whatever path the committee chooses, it must wean the country off oil.

"Let's keep our eyes on the petroleum ball," he said. "That is the key issue."

Source: Scripps Howard Foundation Wire