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WASHINGTON - Ethanol's 45 cent per gallon tax credit could end by July 31 rather than the previously scheduled Dec. 31 expiration date, according to the terms of a deal announced today by DFL Sen. Amy Klobuchar, Sen. John Thune (R-SD) and Sen. Diane Feinstein (D-CA).

The credit, worth over $5 billion a year, has been in the cross-hairs of a bipartisan group of Senators from beyond the Midwest with varying reasons for opposing the industry subsidy. Last month, the Senate voted 73-27 on an amendment to end the tax credit although the underlying bill the amendment was attached to ultimately failed to receive a vote.

After that vote, Klobuchar and Thune began talks with Feinstein, who had co-sponsored the amendment, to find a compromise that would put the ethanol industry on a "glide path" away from the strong government support it has received in the past.

The Minnesota Department of Agriculture estimates that ethanol production contributes $3 billion a year to the state's economy.

Of the $2 billion worth of remaining funds for the blender credit, $1.3 billion will be dedicated to deficit reduction and $668 million will go towards tax credits for installing ethanol infrastructure at gas stations, encouraging the production of cellulosic ethanol that doesn't use corn as a feedstock and extending a tax credit for small producers.

"What this does is it allows us to use existing funds, existing money, not use any new money going forward," Klobuchar told MPR News in a brief interview this morning.

In addition to the tax credits, American-made ethanol also benefits from a federal mandate to mix the fuel with gasoline and a tariff on imported ethanol that's targeted at Brazil.

The deal comes at a time when Congress and the White House are engaged in high-stakes talks to raise the government debt ceiling and craft a long-term deficit reduction plan. Klobuchar hoped the agreement could serve as a template for phasing out other industry subsidies in the tax code.

"I think it's a great example of how an industry in the middle of the year came forward and said, OK, we know our subsidy is going away, let's do it in a smarter way and put some immediate money on the debt," Klobuchar said.

The agreement still needs the approval of the full House and Senate, and President Obama's signature, before it becomes law. Klobuchar said it could be attached to the deficit reduction agreement currently under negotiation.

Industry groups, faced with the complete elimination of the subsidy by the end of the year and an increasingly hostile Congress, welcomed the agreement.

"The final compromise reflects both the importance of the ethanol industry to achieve energy independence and the need for fiscal responsibility," said Bart Schott, President of the National Corn Growers Association.

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Brett Neely

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Ethanol industry faces smaller subsidies going forward.

Ethanol deal would end blender credit within weeks

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