WASHINGTON -- Senator Dianne Feinstein (D-Calif.) reached an agreement with Senators Amy Klobuchar (D-Minn.) and John Thune (R-S.D.) to repeal the nearly $6-billion-a-year ethanol subsidy and end the tariff on foreign ethanol by the end of July, rather than the end of December. The agreement will reduce the federal deficit by $1.33 billion and invest $668 million in new technologies to reduce U.S. dependence on oil.
Under the agreement, the 45-cent-per-gallon ethanol blender credit--the Volumetric Ethanol Excise Tax Credit (VEETC)--will be repealed on July 31 instead of [image-nocss] December 31, saving $2 billion through the remainder of 2011.
The 54-cent-per-gallon tariff on ethanol imports will also expire on July 31.
The tax credit for cellulosic biofuel production, currently set to expire at the end of 2012, will be extended for three years, with annual caps on gallons, and will be expanded to include promising fuels from algae. This will allow the non-corn advanced biofuels industry to emerge and develop, said Feinstein.
Reduced tax credits for alternative fueling infrastructure, including electricity charging stations and natural gas fueling stations, will be extended through 2014. The small-producer tax credit will expire at the end of 2012, with a reduction in the per-gallon credit.
The loss of the subsidy could add extra costs for refiners like Valero and Marathon Oil, but is unlikely to reduce demand for corn because government mandates require increasing amounts of the corn-based fuel until 2015, said a Reuters report.
The agreement, based on Thune and Klobuchar's Ethanol Reform & Deficit Reduction Act, would dedicate two-thirds of the savings, $1.3 billion, to debt reduction and the remaining $668 million in savings to renewable fuel incentives, which the legislators say will help lower retail gasoline prices.
The compromise can now be considered by the full Senate.
"After productive discussions with industry stakeholders over the past several weeks, we have reached a bipartisan solution that reduces the federal deficit and modifies current biofuels policy without pulling the rug out from under American renewable energy producers," said Thune.
This deal "is a major step toward providing our businesses a clear path forward and keeping the biofuels industry competitive while reducing our debt by over a billion dollars this year. With this agreement we can not only continue to support homegrown energy, we can also demonstrate that members with different viewpoints can come together to find common ground to reduce the debt. It is a model for reducing government subsidies going forward," said Klobuchar.
Recent votes in the Senate on this issue have sought to end the current VEETC while still continuing to fund blender pumps. This agreement is consistent with those votes.
Additional details:
Blender pump and alternative fueling infrastructure tax credit. Extends the existing alternative fuel station tax credit to include blender pumps and extend the credit through 2014 by using 2011 funding only; modify the tax credit to allow for ethanol blends between E15 and E85; and clarify that entire cost of dual-use blender pumps qualify for the credit rather than the incremental cost.
A taxpayer may take a 20% tax credit for the installation of alternative fuel infrastructure, up to $30,000, including E85 (85% ethanol and 15% gasoline) infrastructure. This credit is currently scheduled to expire on December 31, 2011. Other fuels that are eligible for the credit include electric charging stations and natural gas refueling stations.
Small-producer ethanol credit. Extend through 2012 the small-producer ethanol credit by using 2011 funding only. This credit is currently scheduled to expire December 31, 2011. The small ethanol producer credit is valued at seven cents per gallon of ethanol produced. The credit may be claimed on the first 15 million gallons of ethanol produced by a small producer in a given year. It applies to any ethanol producer with production capacity below 60 million gallons per year.
Credit for production of cellulosic biofuels and special depreciation allowance for cellulosic biofuels plants. Modify and extend through 2015 the existing $1.01 per gallon tax credit for cellulosic biofuels that would otherwise expire on December 31, 2012. This is done by using 2011 funding only. Includes a depreciation allowance for cellulosic plants, and the definition of cellulosic biofuels will include fuels made from algae.
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