Senators Seek Compromise on Ethanol Subsidies

Jul 8, 2011

Last month the Senate voted to end the ethanol (VEETC) subsidy. The vote was largely “symbolic” as it was an amendment attached to legislation which never made it out of the Senate. Nonetheless, the vote showed Congress was serious about reducing energy subsidies to help reduce the deficit. The vote also showed that if the tax credit is not eliminated as part of the deal that raises the debt ceiling in July, it is unlikely that it will be extended at the end of the year.

In an effort to keep alive some of the incentives for the ethanol industry, while also facing the reality of growing opposition to ethanol subsidies, a bipartisan group of Senators have come to a compromise to repeal an ethanol tax credit as well as the tariff on ethanol imports by the end of the month. Under the agreement, the 45-cent-a-gallon tax credit for ethanol blenders would be repealed on July 31st, as would the 54-cent-a-gallon tariff on ethanol imports. The immediate repeal of these subsidies would add up to $1.3 billion of the $2 billion due to the industry this year, which would all be channeled to deficit reduction. The remainder of the subsidy money for 2011 would be divided up between a tax credit for cellulosic biofuel, an alternative fueling tax credit, and a small-producer tax credit. The production tax credit for cellulosic biofuel, set to expire at the end of 2012, would be extended for three years with annual caps on gallon that qualify.

The Senators are pushing for the agreement’s inclusion in any deal by the White House and congressional leaders to raise the debt limit and reduce the deficit.