New effort to revive U.S. biodiesel credit

A worker pumps biodiesel into a forklift at Sime Darby Biodiesel plant in Carey Island outside Kuala Lumpur July 31, 2009.

WASHINGTON (Reuters) - Senate leaders have dropped from a jobs creation bill a U.S. tax credit for biodiesel, creating uncertainty for biodiesel makers, who say they need the incentive to keep running.

A $1-a-gallon tax credit, which expired at the end of 2009, was in the first draft of the bill. But Senate Majority Leader Harry Reid pared back the bill on Thursday, dropping the biodiesel tax credit, among other tax measures.

A spokeswoman said Sen Charles Grassley, the No 1 Republican on the Finance Committee, will press for action on the biodiesel credit and other so-called tax extenders. They will be put into a Republican jobs bill or a list of amendments submitted for inclusion in Reid's bill, she said.

Reid presented a different plan of action on Thursday. He said his pared down bill would be the first of several job-creation bills, so provisions stripped from the Reid bill would be considered later.

Senators are not expected to vote on the stripped-down bill before the week of February 22.

The U.S. Agriculture Department projects 11 percent of U.S. soybean oil will be turned into biodiesel this marketing year.

The American Soybean Association has said biodiesel production has essentially stopped since the tax credit expired at the end of 2009.

The new bill also dropped a provision for $1.5 billion in disaster relief to farmers hit by heavy rain and floods at harvest in 2009.

The relief is a priority for Agriculture Committee chairman Blanche Lincoln who faces a tough re-election fight this year.

Lincoln will continue to push for the aid, a spokeswoman said.

(Reporting by Roberta Rampton and Charles Abbott; Editing by Walter Bagley and Lisa Shumaker)