An end to most subsidies for producers of corn-based ethanol appears closer this week as key U.S. Senators reached a bipartisan compromise agreement.

Senators  Amy Klobuchar (D-Minn.), John Thune (R-S.D.) and Dianne Feinstein (D-Calif) drafted the agreement, which calls for ending the Volumetric Ethanol Excise Tax Credit (VEETC) and diverting $1.3 billion in savings this year toward debt reduction. Another $668 million will be used for incentives for the ethanol and biofuels industries.

According to a statement from Senator Feinstein’s office:

  • The 45-cent-per-gallon ethanol blender credit (VEETC) will be repealed on July 31, saving $2 billion through the remainder of 2011.
  • The 54-cent-per-gallon tariff on ethanol imports will also expire on July 31.
  • The tax credit for cellulosic biofuel production, currently set to expire at the end of 2012, will be extended for three years, with annual caps on gallons, and will be expanded to include promising fuels from algae. This will allow the non-corn advanced biofuels industry— the cleanest form of vehicle fuel—to emerge and develop.
  • Reduced tax credits for alternative fueling infrastructure, including electricity charging stations and natural gas fueling stations, will be extended through 2014. The small-producer tax credit will expire at the end of 2012, with a reduction in the per-gallon credit.

Agricultural groups and renewable fuels organizations generally express support for the agreement, as they see support for ethanol tax credits slipping in the face of government budget deficits.

National Farmers Union president Roger Johnson says “Sens. Klobuchar, Thune and Feinstein have created a sensible plan to reduce the deficit and continue investing in renewable fuel infrastructure. NFU has long maintained that such investments are necessary in order to ensure that ethanol is on a level playing field with oil and to provide consumers greater choice at the pump.”

National Corn Growers Association President Bart Schott also expresses support for the compromise. “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.  The final compromise reflects both the importance of the ethanol industry to achieve energy independence and the need for fiscal responsibility. The ethanol industry continues to have a positive impact on all parts of America, and we are committed to working with Congress in the future on steps that can move the ethanol industry and the nation’s economy forward.”

Even the Renewable Fuels Association seems generally satisfied with the agreement. “This bipartisan effort to find common ground is the kind of sensible policy making American voters desperately want from their elected leaders says Bob Dinneen, RFA President and CEO.  “We greatly appreciate the leadership of Senators Klobuchar and Thune in doggedly pursuing a solution to this impasse. Walking away from investments made in America’s ethanol industry cold turkey would jeopardize the future of biofuel production in America, including stifling the progress of advanced and cellulosic ethanol technologies."

"This is not the perfect compromise,” Dinneen adds, “ 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.”