Senate farm bill puts $2.3 bln in biofuels

WASHINGTON (Reuters) - Some $2.3 billion in federal support would flow to biofuels under the Senate farm bill, half of it to develop cellulose as a companion to corn as a feedstock for fuel ethanol, Democratic senators said on Thursday.

Agriculture Committee chairman Tom Harkin said the bill proposed a "very robust" program in biofuels. The bill "puts us on a path" to produce 60 billion gallons of biofuels by 2030, roughly 10 times current output, said the Iowa Democrat.

The package includes $1.1 billion to encourage farmers to grow biomass crops, in financial aid to construct ethanol plants using cellulose, found in grasses and wood, as a feedstock, and to help refiners buy biofuel feedstocks.

An additional $1.1 billion would be expended in tax credits for biofuels, including credits for cellulosic ethanol. Those provisions came from a Finance Committee bill that was merged into the panoramic bill drafted by the Agriculture Committee.

Colorado Democrat Ken Salazar said cellulosic ethanol would be eligible for up to $1.28 a gallon in credits. The bill has a credit to small producer of 67 cents for cellulosic ethanol, the current 10-cent credit available to all small producers and the long-standing 51-cent tax credit for blending ethanol into gasoline.

A recent report by the Congressional Budget Office said the House farm bill authorized $3.2 billion in mandatory spending on energy programs.

A half-dozen senators want to add language to the farm bill to require the use of 36 billion gallons of biofuels by 2022, including 21 billion gallons of cellulosic ethanol, biodiesel and other alternative fuels. The mandate is now 7.5 billion gallons in 2012. Production is forecast for 6.5 billion gallons this year.

"If we don't raise this," said South Dakota Republican John Thune, "we're going to have a terrible, terrible crunch" in the ethanol industry. High grain prices and a recent decline in ethanol prices mean shrinking margins for ethanol producers, he said.

(Reporting by Charles Abbott; Editing by Marguerita Choy)