U.S. ethanol subsidy part of tax deal: trade group

A man fills his 2002 Chevrolet Tahoe with E85 fuel, a blend of 85% denatured ethanol and gasoline at a gas station in Greeley, Colorado July 7, 2006. REUTERS/Rick Wilking

WASHINGTON (Reuters) - An extension of the major U.S. ethanol subsidy “is part of the deal at the moment” in negotiations for an omnibus tax bill, but the size and lifespan of the subsidy are not set yet, a trade group said on Wednesday.

The chairman of the Senate Budget Committee told reporters ethanol “was in a separate section of things to be resolved” and there was no decision on a subsidy rate. Chairman Kent Conrad discussed the issue with fellow Democrats.

The 45-cent-a-gallon excise tax credit for ethanol is scheduled to expire on Dec 31. So would a 54-cent-a-gallon tariff on imported ethanol and a 10-cent-a-gallon credit for small producers of ethanol.

In a statement, the Renewable Fuels Association said an extension of the credit “is part of the deal at the moment,” according to congressional and Obama administration sources.

“The final details -- the length of the extension and the value of the credit -- are still being discussed,” said RFA. It cautioned that the contents of the tax bill still could change.

A 36-cent ethanol tax credit for 2011 was proposed last week by the chairman of the Senate’s tax committee, along with an 8-cent small producer credit, continuation of the 54-cent import tariff and revival of a $1 a gallon biodiesel credit.

Ethanol groups have said they will accept lower subsidy rates and other reforms as part of a longer-term policy on biofuels. Jeff Broin, chief executive of POET, the No. 1 producer, said an extension of the excise tax credit would allow time to put the long-term plan in place.

POET supports a proposal to convert the credit into a fund to install so-called blender pumps that deliver fuel that is up to 85 percent ethanol and loan guarantees for biofuel pipelines. The government would also encourage production of cars and trucks that can burn the higher-ethanol fuel.

A lower-cost ethanol policy could appeal to lawmakers during an era of fiscal austerity, Broin said in an interview. He said there was significant interest in the administration and among lawmakers in the proposal.

Reporting by Charles Abbott; Editing by David Gregorio