WASHINGTON U.S. Senators will introduce legislation as soon as Wednesday that seeks to modify subsides for the ethanol industry instead of slashing them as severely as another measure previously proposed by other senators.
The new bill, to be introduced by Senator Charles Grassley from Iowa and other farm-state lawmakers from the Midwest, would extend the tax credit for ethanol makers for two years, which along with a tariff on imported ethanol is set to expire at the end of the year.
But the measure would reduce the current 45-cents a gallon tax credit, which is estimated to cost $6 billion a year. The credit is increasingly unpopular in a Congress looking to cut costs.
In 2012 the credit would fall to 20 cents per gallon and in 2013 it would slip to 15 cents per gallon, according to a copy of draft legislation obtained by Reuters.
After 2013 the credit would be linked to the price of oil.
The variable rate starts at 30 cents a gallon if the price of crude traded in New York is less than $50 a barrel. It drops 6 cents when crude is over $50 a barrel, then drops another 6 cents for any $10 rise beyond $50. At $90 a barrel the incentive is wiped out.
"We think it's a smart policy that allows the industry to evolve while it addresses the budget concerns of some on Capitol Hill," said Matt Hartwig, a spokesman for the Renewable Fuels Association, an industry group.
"The variable credit provides the ethanol market stability against the volatility of oil markets."
Grassley's office would not say when the bill would be introduced.
The ethanol industry, which uses corn to make the alternative fuel, is lobbying hard for continued support for the sector which has wide support in farm states and by its lawmakers.
On Tuesday, a bipartisan group of seven senators led by Dianne Feinstein and Tom Coburn, introduced a bill to immediately end the subsidies and the tariff on imports, saying the government can no longer afford to pay the benefits.
Hartwig said that bill to end subsidies would push the ethanol industry "off a cliff." It would lead to plant closures and job losses because it would cut the incentive immediately rather than gradually, he said.
The Grassley bill would also provide incentives to help the ethanol industry transform with new infrastructure to get biofuels to market. So-called blender pumps which allow customers to chose the blend of ethanol they want in their cars would benefit.
(Editing by Russell Blinch and David Gregorio)