Draft bill to cut U.S. ethanol tax credit by 9 cents

WASHINGTON Thu Jul 15, 2010 5:59pm EDT

WASHINGTON (Reuters) - Democratic leaders on the U.S. House tax writing committee plan to push legislation to extend billions of dollars in tax credits for biofuels and renewable energy sources.

The draft legislation, a copy of which was obtained by Reuters on Thursday, would extend for one year the ethanol tax credit and a tariff on ethanol imports at a cost of nearly $3.8 billion.

However, the ethanol producer tax credit would be reduced to 36 cents per gallon, with an additional 8-cent per gallon tax credit for small producers. The blender credit is now 45 cents a gallon and the small producer credit is an additional 10 cents.

Extending the ethanol producer tax credit is popular among farm state lawmakers, especially during this year's mid-term congressional elections.

However, some energy experts and budget hawks say the producer credit as well as the import tariff are not needed, because the ethanol industry is mature after nearly four decades in commercial existence. Ethanol tax breaks cost $6 billion a year.

With Congress mandating the United States use more ethanol, some energy experts are also calling for the U.S. import tariff to be reduced if not eliminated all together to ensure adequate supplies.

The draft bill would also reinstate a nearly $2 billion biodiesel and renewable diesel tax credit for 2011. The tax credit expired for this year.

The ethanol and biodiesel tax credits are among the $22.1 billion in tax breaks and other financial assistance the bill would offer to promote clean energy.

The biggest assistance in the draft bill is a $6.9 manufacturing tax credit to establish, expand or reequip facilities to make solar, advance batteries and fuel cell components.

The bill would also provide $3.8 billion to extend direct payments, instead of production tax credits, to companies that generate electricity from wind energy.

The legislation would provide $2.3 billion to extend an investment tax credit through 2016 for long-term projects that produce electricity by geothermal and wind energy.

Another $1.3 billion would be provided to issue bonds that allow States and large municipalities to finance low-interest loans and grants to consumers who want to make their homes more energy efficient.

(Reporting by Tom Doggett and Charles Abbott; Editing by Sofina Mirza-Reid)

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