Oil and Gas

Ethanol tax break may ride on U.S. energy bill

WASHINGTON, July 13 (Reuters) - Senators from the U.S. Midwest may attach a long-term extension of biofuel tax breaks to an energy bill being formulated by Democratic leaders.

Senator Amy Klobuchar of Minnesota mentioned the idea of linking the issues during a speech on Tuesday to soybean growers. Two ethanol spokesmen and a Capitol Hill source said the approach was possible, but not guaranteed.

Senate Majority Leader Harry Reid planned to meet five committee chairmen this week to see if an energy bill, or a climate bill, can be fashioned from various proposals. Congress has a relatively limited amount of time to act this year with mid-term elections looming.

A $1-a-gallon tax credit for biodiesel lapsed at the end of 2009 and major ethanol incentives, including a blender tax credit and a tariff on imported ethanol, expire at the end of this year. Ethanol proponents say they want a long-term legislative solution, besides promoting short-term fixes in stand-alone bills.

The tax breaks are worth $6 billion a year, say critics. They include a 45-cent-a-gallon tax credit for gasoline blenders, a 54-cent-a-gallon tariff on imports, a $1.01-a-gallon credit to cellulosic ethanol producers, and a 10-cent-a-gallon small-producer tax credit for ethanol.

Using corn as feedstock, ethanol makers distilled more than 10.75 billion gallons of the renewable fuel in 2009. The largest makers are Archer Daniels Midland ADM.N, privately owned POET and Valero Energy Corp VLO.N.

Klobuchar said strong biofuels provisions should be part of a revamped energy bill. A Capitol Hill source said the energy bill was a possible vehicle for biofuels, but cautioned there was no consensus on a bill.

Although the House and Senate have voted to revive the biodiesel credit as part of a so-called tax extender bill, they have not agreed on the same piece of legislation. The bill has foundered on growing concern in the Senate to rein in federal spending.

The biodiesel credit may also be offered as an amendment to a small-business bill. Klobuchar said a new vote on the credit could be called soon after a replacement is named for the late Senator Robert Byrd of West Virginia. (Reporting by Charles Abbott; Editing by Walter Bagley)