Ending Federal Supports For Ethanol

Most federal subsidies on ethanol would quickly become a thing of the past under a bipartisan Senate deal reached July 7.

The agreement, which is expected to become part of legislation to raise the federal debt limit, would end the ethanol excise tax credit of 45 cents per gal after July 31. That tax credit was set to expire on Dec. 31.

Repealing the tax credit five months before the end of the year would save the U.S. Treasury $1.3 billion, say the lawmakers who brokered the deal -- Sen. Dianne Feinstein (D-Calif.), Amy Klobuchar (D-Minn.), and John Thune (R-S.D.)

In addition, the agreement would abolish the 54 cents-per-gal tariff on imported ethanol after July 31.

The deal wouldn’t totally eliminate all federal support for the ethanol industry. It would extend $1.01-per-gal tax credit for cellulosic biofuel production, which is set to expire at the end of 2012, through 2015.

Meanwhile, the agreement would prolong the investment tax credit for investments in alternative fuel infrastructure, such as electric vehicle charging stations or natural gas fueling station. That credit, with a current sunset date of Dec. 31, would continue through the end of 2014. This tax credit would decline from 30% to 20% as of Jan. 1, 2012.

In addition, the tax credit for small ethanol producers, set to expire on Dec. 31, would be extended to the end of 2012 and would drop from the current 10 cents per gal to 7 cents per gal.

Feinstein, an opponent of the ethanol tax breaks, says, “This agreement is the best chance to repeal the ethanol subsidy.”

Thune, who represents a corn belt state, says the deal helps reduce the federal deficit “without pulling the rug out from under American renewable energy producers.”

The bipartisan deal is a sign that the ethanol and corn lobbies are losing their sway over federal biofuel policy, says Craig Cox, senior vice president at the Environmental Working Group. The activist group lobbies against farm subsidies.

Brooke Coleman, executive director of the Advanced Ethanol Council, says, “This agreement has enough of the right ingredients to move the conversation forward.”