Sens. Thune, Klobuchar strike ethanol deal, but future uncertain

By Sara Wyant

© Copyright Agri-Pulse Communications, Inc

WASHINGTON, July 7 - The Volumetric Ethanol Excise Tax Credit (VEETC) and the ethanol tariff would end on July 31, 2011 with part of the savings going to deficit reduction and the remainder going into renewable fuel incentives, under a bipartisan agreement announced by U.S. Senators John Thune, R-S.D., Amy Klobuchar, D-Minn. and Diane Feinstein, D-CA, today.

Approval is not a “done deal” but sources say this compromise is likely to be included in any type of deficit reduction package that congressional leaders are able to advance as part of a deal to raise the nation's debt ceiling.

The compromise comes after the Senate voted 73-27 on June 16, adopting legislation from Sen. Feinstein that would eliminate as of July 1 the 45-cent-per-gallon VEETC and also kill the 54-cent-per-gallon tariff on ethanol imports.

If approved by both the House and Senate, the agreement, based on Thune and Klobuchar's bipartisan Ethanol Reform and Deficit Reduction Act, would end the existing 45- cent per gallon Volumetric Ethanol Excise Tax Credit on July 31, 2011, instead of the current expiration date of December 31, 2011. Two-thirds of the savings from existing money-$1.3 billion-would go towards debt reduction and the remaining $668 million in savings to renewable fuel incentives, helping provide consumers with lower gas prices.

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The package also extends 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. 


The Small Ethanol Producer Tax Credit, would be extended for one year, but the value would be reduced from 10 cents to 7 cents. It would also extend the depreciation allowance of 50% for cellulosic biofuel plant property through 2015.


In addition, the agreement would extend the existing $1.01 per gallon tax credit for cellulosic biofuels through 2015.  However, the announced deal would cap how much money could be spent at $50 million, $100 million, and $155 million in 2013, 2014, and 2015, respectively. 

“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,” said Thune. “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.”

Ethanol industry groups were generally supportive of the changes, albeit with a few caveats.

“ACE thanks both Senators John Thune and Amy Klobuchar for their support and leadership in negotiating this compromise, which represents the art of the possible given the fiscal mood in Congress,” said Brian Jennings, Executive Vice President of the American Coalition for Ethanol.


We are pleased with the three-year blender pump tax credit and will work with marketers to try and take full advantage of these increased incentives to convert to blender pumps. ACE is also grateful that the Small Ethanol Producer Tax Credit, which is crucial for many of our independent and farmer-owned members, was extended for one year as well as key cellulosic biofuel provisions. ACE will work with Senators Thune and Klobuchar to support enactment of this legislation by the end of July.”

“Senators Thune and Klobuchar worked tirelessly to help shape a compromise that will benefit all Americans,” said Growth Energy CEO Tom Buis. “This proposal will benefit consumers at the pump, reduce our dependence on foreign oil by investing in next generation biofuels, and make a significant contribution to reducing our nation's budget deficit.”

“This bipartisan effort to find common ground is the kind of sensible policy making American voters desperately want from their elected leaders,” said Bob Dinneen, President and CEO of the Renewable Fuels Association. “However, the RFA and the Advanced Ethanol Council have concerns that a cap on the the development of cellulosic ethanol sends the wrong signal to the market.


A particularly important part of this agreement is the commitment to continue the evolution of the industry to new technologies and new feedstocks for cellulosic ethanol,” added Dinneen. “We are pleased the agreement recognizes the importance of cellulosic ethanol by committing $305 million to this effort. However, we are concerned that capping cellulosic ethanol development sends the wrong signal and we will continue to work with the Congress and the Obama Administration to address this anomaly in as this process continues.”


“This is not the perfect compromise, but it does demonstrate the willingness of American ethanol producers and advocates to do their part to address budget concerns while not sacrificing the progress and evolution of the industry. I would challenge other industries to step up to the plate in the same manner. The status quo of American energy and tax policy simply won't work.”


"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.


“NCGA is grateful to Senators Thune and Klobuchar for the hard work and dedication they have put in to reaching a final deal.  There are many positive components of this compromise that are important to the ethanol industry and rural America,” added Schott.

Additional details of the Thune/Klobuchar compromise include:

Deficit Reduction 
Immediately allocate $1.3 billion toward deficit reduction.
Blender Pump and Alternative Fueling Infrastructure Tax Credit

Extends 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 may 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 December 31, 2011. Other fuels that are eligible for the credit include electric charging stations and natural gas refueling stations.

Small Producer Ethanol Credit

Extend through 2012 the small producer ethanol credit by using 2011 funding only. This credit is currently scheduled to expire December 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. 
Credit for Production of Cellulosic Biofuels and Special Depreciation Allowance for Cellulosic Biofuels Plants

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.

Includes a depreciation allowance for cellulosic plants, and the definition of cellulosic biofuels will include fuels made from algae.

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