Senators Agree on Plan to End Ethanol Tax Credit

Senate negotiators on Thursday announced a final deal that would end a 45-cent-per-gallon tax credit for ethanol.

Under the Senate compromise, the ethanol tax credit would go off the books on July 31 instead of December 31, producing a savings of roughly $2 billion. But instead of using all the funds for deficit reduction, the Senate bill allocates $1.3 billion to help with the deficit and uses $668 million to support renewable energy efforts such as blender pumps that distribute ethanol, storage tanks for ethanol, plug-ins for electric cars, natural gas development and efforts to produce ethanol from sources other than corn.

The agreement was announced by Sens. Dianne Feinstein (D-California), John Thune (R-South Dakota) and Amy Klobuchar (D-Minnesota). The measure now goes to the House for consideration, where its prospects are uncertain.

The credit to ethanol refiners helped support a $3 billion industry in Minnesota that is tied to 8,000 jobs. For Minnesota's 21 ethanol plants and the corn growers who stock them, the news was disappointing, but not unexpected, given a recent overwhelming Senate vote to immediately end the 45-cent-per-gallon credit. The announcement of the compromise included statements of support from the Minnesota Farm Bureau and the Minnesota Farmers Union.

Brian Jennings of the American Coalition for Ethanol called the deal “the art of the possible.”

A 73-27 vote to immediately end the tax credit empowered opponents of ethanol, said Jennings. “That led negotiations to a position of 'Take it or leave it.' The corn ethanol industry can't go to the Hill like we did in the past.”

Klobuchar co-authored three other pieces of legislation that aimed to phase out the credit over four or five years. That will not happen. Also, the $668 million going to pay for blender pumps and other renewable fuel efforts is $300 million less than what Klobuchar sought.

“We had $1 billion going for deficit reduction [and $1 billion going for renewable energy initiatives],” Klobuchar told the Star Tribune on Thursday. The compromise represents what Klobuchar called “shared sacrifice.”

“Do I think we're going to have to explain it to people?” Klobuchar asked. “Yes, because it was so complicated. But was that a reason to walk away from it and just let the tax credit end? No. It was the best thing to do for our state and for our country.”

Klobuchar said the ethanol industry's willingness to give up its subsisidies should serve as an example for other energy industries, especially the petroleum industry.

“I hope this puts tremendous pressure on the oil industry,” Klobuchar siad. “You have a relatively small industry like biofuels putting two-thirds of its remaining tax breaks on the table [for deficit reduction]. Why doesn't oil do that with its tax breaks as well?”