Senate tax bill cuts, extends ethanol credit

WASHINGTON Fri Dec 3, 2010 4:56pm EST

A truckdriver unloads his cargo of corn into a chute at the Lincolnway Energy plant in the town of Nevada, Iowa, December 6, 2007. The company, one of a growing number across Iowa and the United States, converts corn to ethanol fuel to be used in flexible-fuelled vehicles as an alternative energy source to oil. REUTERS/Jason Reed

A truckdriver unloads his cargo of corn into a chute at the Lincolnway Energy plant in the town of Nevada, Iowa, December 6, 2007. The company, one of a growing number across Iowa and the United States, converts corn to ethanol fuel to be used in flexible-fuelled vehicles as an alternative energy source to oil.

Credit: Reuters/Jason Reed

WASHINGTON (Reuters) - The major U.S. ethanol incentive would be cut by 20 percent but given one more year of life in a Senate tax bill that also would revive a biodiesel tax credit that died a year ago.

The bill was "very unlikely to pass" but would be a starting point for negotiations this month on many issues including estate tax and income tax rates, said consultants Washington Research Group on Friday.

The analysts said a final tax package was not likely until late this month. Senators were expected to debate the tax package on Saturday.

With ethanol supporters under fire by livestock producers, foodmakers and environmental groups, ethanol leaders say the best chance to extend biofuel supports is to attach them to a must-pass tax bill. Ethanol supports cost $6 billion a year.

For biofuels, the bill by Finance Committee chairman Max Baucus proposed:

--setting the ethanol excise tax credit at 36 cents a gallon and a small producer credit at 8 cents a gallon through 2011. The blender's credit now is 45 cents and the small producer credit is now 10 cents. Both expire on Dec 31.

--extending the tariff on ethanol imports through 2011 at 54 cents a gallon, the current rate. The tariff expires on Dec 31.

--extending the biodiesel tax credit of $1 a gallon through 2011. The credit expired last Dec 31. The House and Senate voted to revive the credit this year but did not agree on a legislative vehicle. A small agri-biodiesel credit of 10 cents a gallon also would be extended through 2011.

--extending through 2011 the $1 a gallon alternative fuel tax credit for a diesel fuel created from biomass.

--extending through 2011 a 50-cent a gallon alternative fuel tax credit for liquid fuels derived from biomass, compressed or liquefied biogas, natural gas and propane. The credit would not be allowed for "black liquor" or other fuels that are a co-product of paper plants.

Two ethanol trade groups applauded the prospect of an extension of the tax credit. They said it could be a springboard for Congress to adopt longer-term changes in biofuels policy.

The Renewable Fuels Association suggested creation of a refundable investment tax credit for advanced biofuels, to make it easier to bring commercial-scale plants into operation.

Growth Energy proposed in mid-summer a package that would convert the ethanol credit into tax credits for installation of 200,000 "blender" pumps that dispense higher blends of ethanol and loan guarantees for construction of biofuels pipelines.

As part of the plan, the government also would require all new automobiles sold in the United States to be flexible fuel vehicles, which can burn fuel that is up to 85 percent ethanol.

The industry said this fall it would accept lower supports in exchange for a long-term package of incentives that could include conversion of the excise credit to a producer credit.

(Reporting by Charles Abbott; Editing by David Gregorio)

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