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Senators offer deal to end ethanol credit

Associated Press / July 8, 2011

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WASHINGTON - Two senators from ethanol-producing states proposed yesterday to immediately end a tax credit for the corn-based fuel, agreeing to support shifting some of that money to debt reduction.

Senators Amy Klobuchar, Democrat of Minnesota, and John Thune, Republican of South Dakota, along with ethanol opponent Senator Dianne Feinstein, Democrat of California, have proposed diverting $1.3 billion of the money remaining for the tax break this year to pay for debt reduction. And $668 million will be used for incentives for the ethanol and biofuels industries.

If accepted by the House and the Obama administration, the compromise could provide a quick path to end the ethanol credit as part of budget negotiations between Congress and the White House. The Senate last month adopted an amendment to end the $5 billion subsidy, but the fate of the legislation it is attached to - a bill renewing a federal economic development program - is uncertain.

The White House signaled support for the deal.

“Consistent with the administration’s goals, this deal provides a roadmap for the American biofuels industry to navigate their own future expansion - addressing infrastructure needs while supporting innovation for the next generations of biofuels,’’ said White House spokesman Matt Lehrich.

The ethanol industry once enjoyed strong support from Congress, but it has suffered as lawmakers have looked for ways to cut budgets and have started to question why the industry still needs government help after three decades of production.

The compromise between the three senators would end the tax credit at the end of this month and redistribute the $2 billion left over for the year. It also would allow the ethanol industry to salvage at least some of the federal subsidy money.