Two senators from ethanol-producing states proposed Thursday to immediately end a tax credit for the corn-based fuel and agreeing to support shifting some of that money to debt reduction.
Sens. Amy Klobuchar, D-Minn., and John Thune, R-S.D., along with ethanol opponent Sen. Dianne Feinstein, D-Calif., have proposed diverting $1.3 billion of the money remaining for the tax break this year to pay for debt reduction. And $668 million will be used for incentives for the ethanol and biofuels industries.
If accepted by the House and the Obama administration, the compromise could provide a quick path to end the ethanol credit as part of budget negotiations between Congress and the White House. The Senate last month adopted an amendment to end the $5 billion subsidy, but the fate of the legislation to which it's attached — a bill renewing a federal economic development program — is uncertain.
The White House signaled support for the deal.
"Consistent with the Administration's goals, this deal provides a roadmap for the American biofuels industry to navigate their own future expansion — addressing infrastructure needs while supporting innovation for the next generations of biofuels," said White House spokesman Matt Lehrich.
The ethanol industry once enjoyed strong support from Congress, but it has suffered as lawmakers have looked for ways to cut budgets and have started to question why the industry still needs government help after three decades of production. The Senate vote last month signaled that the tax credit, scheduled to expire at the end of the year, was probably doomed.
The compromise between the three senators would end the tax credit at the end of this month and redistribute the $2 billion left over for the year. It also would allow the ethanol industry to salvage at least some of the federal subsidy money.
Critics say ethanol subsidies are no longer needed for an industry that is already supported by a mandate from Congress that requires refiners to blend 36 billion gallons of biofuels into auto fuel by 2022.
As that criticism has become louder, Klobuchar and other farm-state members have worked with the industry to find alternate ways to spur production without spending as much taxpayer money.
"The better thing to do is to end it now and go on a more prudent course going forward," said Klobuchar.
The $668 million in incentives will go to help gas stations deliver the fuel to consumers, to the smallest producers who may be hurt the most by the elimination of the tax credit and to producers trying to make ethanol from materials other than corn.
Ethanol industry groups praised the agreement Thursday, signaling it is the best they can do as Washington has trained a skeptical eye on their business. Just last year, many in the industry were hoping the full $5 billion tax break could be diverted for industry incentives.
"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," said Tom Buis, the head of industry group Growth Energy.
Some were critical of the deal. Taxpayer groups criticized it for continuing any subsidies at all, as did some meat groups, who say higher corn prices due to ethanol are making animal feed more expensive.
"The resulting compromise still provides new federal funds for corn-based ethanol, money that would be better spent reducing the deficit or encouraging the development of energy sources that do not compete with feed needs," several national meat and dairy groups said in a joint statement.