Senators Reach Deal to End Ethanol Tax Credit

Senate negotiators have reached a deal that would end an ethanol tax credit by July 31 and use the money saved to reduce national debt and fund other renewable energy efforts.

A group of U.S. Senators, including Minnesota's Amy Klobuchar, on Thursday announced that they have reached an agreement that could end an ethanol tax credit by the end of this month and reallocate $1.3 billion to reducing the federal deficit.

Minnesota is home to 21 ethanol plants and a $3 billion ethanol industry that's tied to more than 8,000 jobs, according to 2010 data from the Minnesota Department of Agriculture. The state produced roughly 1.1 billion gallons of ethanol last year.

The senators' agreement is based on the “Ethanol Reform and Deficit Reduction Act” introduced by Klobuchar, a Democrat, and John Thune, a Republican senator from South Dakota.

The 45-cent-per-gallon Volumetric Ethanol Excise Tax Credit is set to expire on December 31. The agreement announced on Thursday would result in the credit instead coming to an end on July 31, and the proposed deal will now go before the entire Senate and House for a vote.

The credit was originally created by the American Jobs Creation Act of 2004 as a way to subsidize the ethanol industry. The tax break goes to refineries that blend ethanol with gasoline.

Those who oppose the credit have argued that the money could be used in better ways. Under the agreement announced Thursday, two-thirds of the money saved by ending the credit early-$1.3 billion-would go to debt reduction, while the remaining $668 million would go to “renewable fuel incentives,” such as helping gas stations that install ethanol blender pumps. Those funds would also support efforts to produce ethanol from sources other than corn and extend some other renewable fuel production tax credits, the senators said.

Those in favor of maintaining the 45-cent-per-gallon ethanol tax credit have argued that letting it die could kill thousands of jobs nationally, including hundreds in Minnesota.

Klobuchar said in a statement that the 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.” She described the bipartisan compromise as “a model for reducing government subsidies going forward.”

But the compromise would reportedly result in fewer savings than Klobuchar had originally sought. The senator told the Star Tribune that the $668 million that would be allocated to blender pumps and alternative renewable fuel efforts is $300 million less than what she originally was after.