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Congress likely to cut US ethanol aid, not end it
December 6, 2010 / 11:12 PM / 7 years ago

Congress likely to cut US ethanol aid, not end it

* Ethanol tax credit could fall to 36 cents a gallon

* Baucus package may be early look at biofuels future

* Ethanol believed in the mix in tax bill discussions

* Industry seeks longer-term ethanol policy

By Charles Abbott

WASHINGTON, Dec 6 (Reuters) - Congress is likely to extend the major U.S. ethanol incentive, rather than let it expire at the end of the month, but it will cut the tax credit by 20 percent or so, an analyst and an industry spokesman said on Monday.

Mark McMinimy of Washington Research Group said the most likely outcome was for a one-year extension of the tax credit at 36 cents a gallon, down from the current 45 cents.

The Renewable Fuels Association, a trade group, said it believed ethanol was part of ongoing discussions for an omnibus tax bill dominated by estate and income tax rates. A business lobbyist also said ethanol was believed part of the talks.

If included in the omnibus bill, biofuel provisions were expected to be similar to a proposal last week by Senate Finance Committee chairman Max Baucus -- a 36-cent excise credit for ethanol, an 8-cent credit for small ethanol producers, extension of the 54-cent ethanol tariff and revival of the $1 a gallon biodiesel credit. [ID:nN03140185]

“I think the industry would take that without looking twice,” said McMinimy. He cautioned lawmakers could reduce the credit below 36 cents, and agreement on a tax will was not a sure thing.

RFA spokesman Matt Hartwig said the Baucus provisions could be an early look at the likely final result of congressional action, a view held by others in the ethanol industry.

“Is 36 cents better than zero? Absolutely,” said Hartwig, but he added the industry would continue to seek a higher support rate or a longer-term extension.

Production could fall by as much as 10 percent if the credit lapses, says the industry although some analysts say the drop-off would be smaller. A 2007 law guarantees ethanol and other renewable fuels a share of the motor fuel market.

Ethanol trade groups signaled during the summer they would accept lower support rates and other reforms in exchange for a long-term extension of subsidies. Foodmakers, livestock producers and environmentalists want to end the ethanol credit.

Besides reducing U.S. reliance on imported oil, ethanol boosts grain prices and creates jobs in rural America, say industry leaders. There are more than 200 ethanol plants, mostly in the U.S. Midwest, each employing four dozen workers.

POET, Archer Daniels Midland Co (ADM.N) and Valero Energy Corp (VLO.N) are the leading U.S. producers. (Additional reporting by Kim Dixon;editing by Sofina Mirza-Reid)

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