A bipartisan pair of senators have announced a compromise on ending the Volumetric Ethanol Excise Tax Credit at the end of this month.

Senators John Thune, R-S.D., and Amy Klobuchar, D-Minn., announced the bipartisan agreement had been reached Thursday. The 45 cents per gallon tax credit was scheduled to expire at the end of December, but under the agreement in Thune and Klobuchar’s Ethanol Reform and Deficit Reduction Act, it would expire at the end of July. The bipartisan agreement would dedicate two-thirds of the savings from existing money—$1.3 billion—to debt reduction and the remaining $668 million in savings to renewable fuel incentives, helping provide consumers with lower gas prices. The compromise can now be considered by the full Senate.

Last month, another bipartisan pair of senators, Senator Tom Coburn, R-Okla., and Dianne Feinstein, D-Calif., passed an amendment to repeal the ethanol tax credit as part of a larger bill that also would have repealed the 54 cents per gallon tariff on imported ethanol (see Senate Passes Ethanol Tax Credit Repeal). The bill to which the amendmet was attached ultimately failed to pass, however. Coburn had long been pushing for the repeal over the objections of farm state senators, including Sen. Charles Grassley, R-Iowa.

However, Grassley welcomed the bipartisan bill introduced by Thune and Klobuchar.

“All things considered, it’s good news that an agreement was reached that salvages some of the effort to reduce America’s dependence on foreign oil,” Grassley said in a statement.  “I wish it would have included a more robust investment in alternative fuel infrastructure and cellulosic ethanol. Overall, the fact that this happened in a vacuum, rather than in an even-handed debate over all energy tax incentives, will always be a raw deal, especially for taxpayers and renewable fuel producers.”

Feinstein has reportedly also endorsed the latest compromise. A spokesman for Coburn's office, John Hart, said Coburn believes the new plan isn’t necessary. "The Senate already agreed to eliminate the ethanol tax earmark and tariff by an overwhelming vote of 73 to 27," said Hart. "The underlying bill to which it was attached failed, but the Senate has spoken clearly on the policy." 

The compromise came after discussions with industry stakeholders, according to Thune.

“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,” Thune said in a statement. “Domestic biofuels production in South Dakota and throughout the country continues to play an important role in reducing our nation’s dependence on foreign oil and creating American jobs. I look forward to moving our bipartisan plan through both the Senate and the House of Representatives.”

“This bipartisan agreement 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,” said Klobuchar. “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.”

Leaders of several ethanol-related organizations endorsed the compromise, including South Dakota Corn executive director Lisa Richardson; American Coalition for Ethanol executive vice president Brian Jennings; Growth Energy CEO Tom Buis; Renewable Fuels Association president and CEO Bob Dinneen, and National Corn Growers Association president Bart Schott.

The agreement would extend 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 would be able to take a 20 percent tax credit for the installation of alternative fuel infrastructure, up to $30,000, including E85 (85 percent ethanol and 15 percent gasoline) infrastructure. This credit is currently scheduled to expire on Dec. 31, 2011. Other fuels that are eligible for the credit include electric charging stations and natural gas refueling stations.

The agreement would also extend through 2012 the small producer ethanol credit by using 2011 funding only. This credit is currently scheduled to expire Dec. 31, 2011. The small ethanol producer credit is valued at 7 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.

The agreement would also 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.

In addition, the bill includes a depreciation allowance for cellulosic plants, and the definition of cellulosic biofuels will include fuels made from algae.

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