March 25, 2010 / 11:02 PM / 9 years ago

House bill extends U.S. ethanol tax breaks to 2016

WASHINGTON, March 25 (Reuters) - The U.S. government would extend ethanol tax breaks and a hefty tariff on imports until 2016 under a bill unveiled by two dozen lawmakers on Thursday, reigniting the “food vs. fuel” debate.

Unless Congress acts, three of the four incentives will expire at the end of 2010. Sponsors say a long-term extension will assure a home-grown fuel supply and bring cellulosic ethanol, tabbed as the new-generation biofuel, into commercial production.

Foodmakers, meatpackers, environmentalists and budget hawks attacked the bill as a wasteful subsidy and a contribution to higher food prices by using food crops to make fuel. Brazilians said they can make ethanol cheaper and deserve a shot at the U.S. market.

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.

Ethanol makers distilled more than 10.75 billion gallons of the renewable fuel in 2009. The largest makers are Archer Daniels Midland Inc (ADM.N), privately owned POET and Valero Energy Corp (VLO.N).

While a small share of U.S. motor fuels, “that’s the biggest thing we have done” to reduce reliance on imported oil, said John Shimkus, Illinois Republican, a lead sponsor of the bill.

Earl Pomeroy, North Dakota Democrat, the other lead sponsor, said backers were allowing plenty of time to win passage.

A revival of the $1 a gallon biodiesel tax credit, which expired at the end of 2009, is pending in Congress.

A federal law guarantees use of 12 billion gallons (45.5 billion liters) of ethanol this year and at least 36 billion gallons annually from 2022. Sixty percent of it would be advanced biofuels, such as ethanol from cellulose, found in grass, crop residue and woody plants.

Farm groups and ethanol trade groups said ethanol pays for itself through lower gasoline prices and smaller crop subsidy payments. If the 45-cent blender credit is rescinded, “nearly two out of every five ethanol biorefineries operating today would be forced to shutter, they said in a letter.

The blender credit, ethanol tariff and small-producer credit expire at the end of this year. The cellulosic credit expires at the end of 2012. (Reporting by Charles Abbott; Editing by David Gregorio)

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