WASHINGTON (Reuters) - U.S. senators from farm states introduced legislation on Wednesday that would modify subsidies for the ethanol industry instead of abruptly ending them as would a bill proposed by other senators.
The new bill, introduced by Senator Charles Grassley from Iowa, would extend for two years the tax credit for ethanol makers, which, along with a tariff on imported ethanol, is set to expire at the end of the year.
But the measure, which has seven bipartisan co-sponsors, would reduce the current 45-cents a gallon 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 to 15 cents per gallon.
After 2013, the credit would be linked to the price of oil. If oil in New York were over $50 a barrel, the credit would be 24 cents. It would fall 6 cents for every $10 rise in crude until the credit is wiped out at $90 a barrel.
“With this bill, ethanol has taken the lead in looking forward,” Grassley said in a release.
Analysts said the bill could satisfy Grassley’s fellow Republicans looking to cut costs, and is consistent with the Obama administration’s desire to reform the incentives.
“This bill could get a serious look in Congress and may even have legs if it gets full support from industry,” said Mark McMinimy, an agribusiness analyst at MF Global’s Washington Research Group.
On Tuesday, a bipartisan group of seven senators led by Dianne Feinstein and Tom Coburn, introduced a bill to end immediately the subsidies and the tariff on imports, saying the government can no longer afford to pay the benefits.
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. Industry groups support Grassley’s bill.
“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.”
Tom Bius, chief executive of Growth Energy, another industry group, also praised the effort. “Restructuring the current ethanol tax credits is something that Growth Energy recommended to Congress over a year ago and Sen. Grassley’s efforts are a key part of our proposal to create a fair and open marketplace,” he said in a release.
Hartwig said Feinstein’s bill to end subsidies abruptly 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, David Gregorio, Sofina Mirza-Reid and Dale Hudson