Senators reach deal to end ethanol tax break

A trio of senators announced a compromise proposal Thursday to quickly end a major ethanol industry tax break while extending incentives for next-wave ethanol and alternative fuel infrastructure.

The agreement meets Sen. Dianne Feinstein’s (D-Calif.) goal of killing the multibillion-dollar ethanol blenders’ credit and the import tariff, rather than allowing them to continue through the end of the year or longer.

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Ethanol advocates Sens. John Thune (R-S.D.) and Amy Klobuchar (D-Minn.), meanwhile, won multi-year extensions of tax credits for producing “cellulosic” ethanol — which isn't made from corn — and installing ethanol blender pumps at gas stations. The plan also extends a credit for small ethanol producers.

The deal will steer $1.33 billion — two-thirds of the savings from ending the blenders’ subsidy — into deficit reduction, while the balance of $668 million would support the other incentives, according to the lawmakers.

The senators touted the compromise in a letter to Senate Majority Leader Harry Reid (D-Nev.) and Minority Leader Mitch McConnell (R-Ky.) calling for action on the proposal — and warning the deal has a political expiration date.

“If Congress fails to enact this proposal before it adjourns for August recess, the substantial levels of deficit reduction and investment achieved by this compromise will no longer be possible, and we cannot commit our support after that point. Therefore, we ask for your assistance in moving this agreement through Congress before we adjourn,” they wrote.

Feinstein and Klobuchar have said the deal could be attached to legislation to raise the debt ceiling, while aides to Thune did not provide immediate comment on his view.

The Senate last month voted heavily in favor of Feinstein’s proposal to quickly end the blenders’ credit and import tariff.

But her plan was attached to economic development legislation that was later derailed. Feinstein — a frequent ethanol critic — has been negotiating for weeks with Thune and Klobuchar, who are among the Farm Belt backers of the fuel.

Feinstein called the compromise a realistic path forward.

“This agreement is the best chance to repeal the ethanol subsidy, and it’s the best chance to achieve real deficit reduction. Absent this agreement, taxpayers stand to lose $1.33 billion — that was the bottom line for me,” Feinstein said in a statement.

“Every month that passes without repeal costs taxpayers $400 million. After years of fighting, there is simply no guarantee a full repeal would be signed into law,” she said.

Thune and Klobuchar also issued statements lauding the deal.

“After productive discussions with industry stakeholders over the past several weeks, we have reached a bipartisan solution that reduces the federal deficit and modifies current biofuels policy without pulling the rug out from under American renewable energy producers,” Thune said.

Klobuchar said the plan would keep the biofuels industry competitive, and called the agreement a template for deals on other issues.

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“With this agreement we can not only continue to support homegrown energy, we can also demonstrate that members with different viewpoints can come together to find common ground to reduce the debt. It is a model for reducing government subsidies going forward,” she said.

The plan would end the credit of 45 cents for each gallon of ethanol blended into gasoline on July 31, rather than letting it expire at year’s end, which the lawmakers say would provide $2 billion in savings.

The existing tax credit for producing cellulosic ethanol – which is viewed as a sustainable alternative to corn ethanol – would be extended for three years through 2015, although there are caps on the number of gallons it would cover.

The plan would also extend investment tax credits for alternative fuels infrastructure through 2014. The credit can be applied to a range of alternative fuels, such as ethanol pumps, natural-gas fueling stations and electric vehicle charging stations, the lawmakers note.

The agreement drew support from ethanol industry trade groups including Growth Energy and the Renewable Fuels Association.

“This proposal will benefit consumers at the pump, reduce our dependence on foreign oil by investing in next generation biofuels, and make a significant contribution to reducing our nation’s budget deficit,” said Growth Energy CEO Tom Buis in a statement.

Here is the senators' letter to Senate leadership:


The Honorable Harry Reid
Majority Leader
S-211, The Capitol
Washington, DC 20510
 
The Honorable Mitch McConnell
Minority Leader
S-230, The Capitol
Washington, DC 20510
 
Dear Majority Leader Reid and Minority Leader McConnell:
 
We are writing to inform you that we have reached a compromise that will repeal the current ethanol blender subsidy and tariff, as of July 31, and invest two-thirds of the savings in deficit reduction and one-third of the savings in tax incentives that increase our energy independence. 
 
The deficit savings of $1.33 billion and the fully offset extension to these tax incentives would not be otherwise available if we were unable to come to an agreement that repeals the 45-cent per gallon ethanol blender credit immediately.  Leaving the ethanol blender subsidy in place until the end of 2011 would cost taxpayers nearly $2 billion over the next five months, which we believe can be redirected for more beneficial purposes.
 
The agreement includes:
•   Repeal of the 45-cent per gallon ethanol blender credit (VEETC) on July 31, saving $2 billion over the next five months.
•   Repeal of the 54-cent per gallon tariff on ethanol imports on July 31.
•   Cellulosic Biofuel Production Tax Credit (currently expires 12/31/2012)
•   3 year extension of $1.01 per gallon credit (to 12/31/2015).
•   Annual cap of 50 million gallons in 2013, 100 million gallons in 2014, and 155 million gallons in 2015.  Unused gallons roll to the next year.
•   Includes depreciation allowance for cellulosic plants, and expands the definition of cellulosic biofuel to include fuels from algae.
•   Score: $308 million
•   Alternative Fueling Infrastructure Tax Credit (currently expires 12/31/2011)
•   3 year extension (to 12/31/2014), modified as proposed in S. 1185.
•   Investment Tax Credit reduced from 30% to 20%, effective 1/1/2012.
•   Covers technology neutral investments in electricity charging stations, blender pumps, or natural gas fueling stations, as specified in 26 USC 30C.  Joint Committee on Taxation estimates that approximately half of qualifying investments will be in non-ethanol infrastructure.
•   Score: $253 million
•   Small Producer Tax Credit (currently expires 12/31/2011)
•   1 year extension (to 12/31/2012).
•   Per gallon credit reduced from 10 cents to 7 cents per gallon.
•   Score: $107 million
 
The compromise invests $668 million in these tax credit extensions, fully offset, while providing $1.33 billion in deficit reduction.  If Congress fails to enact this proposal before it adjourns for August recess, the substantial levels of deficit reduction and investment achieved by this compromise will no longer be possible, and we cannot commit our support after that point.   Therefore, we ask for your assistance in moving this agreement through Congress before we adjourn.
 
We look forward to working with you to reduce the deficit and improve our energy tax policies.
 
 
Sincerely,

Dianne Feinstein, United States Senator
John Thune, United States Senator
Amy Klobuchar, United States Senator

This post was updated at 5:45 p.m.