Senate Floats Deal to End $6B Ethanol Tax Credit

WASHINGTON, D.C. -- The $6-billion ethanol tax credit may become one for the history books. According to a Reuters report, three senators have brokered a deal to repeal the tax credit by the end of this month; however, the agreement still needs Congress' approval.

For industry companies, such as Valero Energy Corp. and Marathon Oil Corp., the loss of the tax credit could result in extra costs. It is unlikely, though, to reduce a demand for corn, the report said.

"This agreement is the best chance to repeal the ethanol subsidy, and it's the best chance to achieve real deficit reduction," said Sen. Dianne Feinstein (D-California), who made the deal with Sens. John Thune (R-South Dakota) and Amy Klobuchar (D-Minnesota).

Government mandates require increasing amounts of the corn-based fuel until 2015. The ethanol industry uses some 40 percent of the U.S. corn crop to make the alternative motor fuel, Reuters reported.

But as the federal government gets closer to hitting the debt limit in early August, lawmakers are working through their summer break to tackle reducing the budget. This deal would reduce the federal deficit this year by $1.33 billion and direct $668 million to extending tax breaks for technologies to help alternative motor fuels, including biofuels, get to market, Feinstein said.

What happens now remains to be seen. The deal could become a stand-alone tax bill or be part of a bigger measure to raise the federal debt limit, according to the news report.

Klobuchar told reporters the proposal could be attached to a tax bill that starts in the House of Representatives or "more likely" be part of the debt ceiling agreement as part of a package of provisions to reduce U.S. debt over the long term. She hopes that repealing oil tax breaks, a goal of President Obama's, could also be added to the package.

"This is a model that can be used going forward," Klobuchar said. "The same can be done with the oil subsidies."

The trio of senators have asked Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell to help move the measure through Congress before the August break, and said they could not promise to support it after that deadline.

According to Reuters, Thursday's deal focuses on ending the 45-cent-per-gallon blenders' credit by the end of July. It would also kill the 54-cent-per-gallon tariff on ethanol by the end of the month, which is added mostly to imports from Brazil, where ethanol is made from sugarcane.

Ethanol producers and industry groups had supported a deal that would end the tax credit, but keep tax credits to support ethanol industry infrastructure, such as advanced pumps at gasoline stations that would allow drivers to select their own blends of ethanol.

In addition, tax credits for alternative fueling -- including electric charging stations for battery-powered cars and natural-gas filling stations -- would be extended through 2014, at a cost of $253 million. Also, a tax credit for small producers of biofuels would be extended for one year to the end of 2012, at a cost of $107 million, the news agency reported.