Senators reach deal on subsidy repeal, urge swift congressional action for maximum benefit

Bipartisan Senate negotiators today reached a deal to save $1.3 billion through an early repeal of two major ethanol tax benefits, setting what could prove a precedent for more energy-sector tax changes as part of a sprawling deal to raise the nation's debt limit.

The agreement released by Sens. Dianne Feinstein (D-Calif.), John Thune (R-S.D.) and Amy Klobuchar (D-Minn.) would end the ethanol blenders' tax credit and the tariff on imported biofuels this month, routing most of the proceeds to deficit reduction while extending tax breaks for infrastructure as well as cellulosic and smaller producers.

The upper-chamber trio had worked since last month on a pact that could win over both the ethanol industry -- which signaled openness to reforming its subsidy structure early on this Congress -- and critics who pushed for a full repeal of federal biofuels supports. Today's deal came as leaders of both parties convened at the White House for debt-limit talks that are homing in on an apparent GOP schism over whether to put the rollback of specific tax breaks on the table (E&E Daily, June 22).

In a letter sent today to their leaders, Feinstein, Thune and Klobuchar called for action on their plan this month in order to wring maximum savings out of the ethanol overhaul.

"If Congress fails to enact this proposal before it adjourns for August recess, the substantial levels of deficit reduction and investment achieved by this compromise will no longer be possible, and we cannot commit our support after that point," the trio wrote. "Therefore, we ask for your assistance in moving this agreement through Congress before we adjourn."


But without a House-side buy-in to the deal, its prospects of becoming law -- either as part of a larger measure to raise the $14.3 trillion debt ceiling or as a stand-alone bill -- are slim. Tax legislation must originate in the House by statute, and spokesmen for Majority Leader Eric Cantor (R-Va.) as well as the Ways and Means Committee did not respond to requests for comment on the Senate pact in time for publication.

Ahead of today's White House sit-down, Cantor signaled an openness to ending specific tax subsidies in a debt-cutting package so long as offsetting tax cuts were added elsewhere. That stance is unlikely to fly with Democrats who view new revenue as an essential component of any final deal, and even some Republicans have left the door open to backing ethanol subsidy reform on its merits.

"I don't know" if ethanol benefits are in the mix for a debt deal, Senate Minority Whip Jon Kyl (R-Ariz.) told reporters yesterday. "But I've always said with regard to ethanol, that's a matter of bad tax policy that I'm willing to do away with no matter what the tax implications of it are."

Klobuchar said today that she saw the ethanol accord as a template for a similar tax-benefit compromise with oil and gas companies.

"This is rather unprecedented in the middle of the year," she told reporters. "If oil would do the same, then we would have a lot of money on the debt."

Both Democratic architects of the ethanol deal have endorsed the idea of adding their proposal to a final debt-limit measure that includes deficit cuts, though Thune has not echoed that call.

One of ethanol's strongest upper-chamber boosters stopped short of opposing the deal but lamented the absence of a larger reassessment of energy-sector tax breaks. "I wish it would have included a more robust investment in alternative fuel infrastructure and cellulosic ethanol," Sen. Chuck Grassley (R-Iowa) said today in a statement. "Overall, the fact that this happened in a vacuum, rather than in an even-handed debate over all energy tax incentives, will always be a raw deal, especially for taxpayers and renewable fuel producers."

Industry reaction

Ethanol interest groups largely hailed the terms of the Senate agreement, which would extend the tax credit for cellulosic production through 2015 with an expansion for algae-based fuels, extend tax incentives for infrastructure through 2014 and extend benefits for smaller ethanol producers through 2012.

"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," Growth Energy CEO Tom Buis said in a statement.

National Corn Growers Association President Bart Schott said in a statement that the deal "reflects both the importance of the ethanol industry to achieve energy independence and the need for fiscal responsibility."

The Renewable Fuels Association (RFA) tempered its praise somewhat, calling for lawmakers to revisit their move to cap the new cellulosic credit while giving the Senate trio credit for its work.

"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," RFA chief Bob Dinneen said. "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."

Brazilian sugar cane ethanol companies, which would stand to gain significant new market access from a repeal of the tariff, lent their voice to the laudatory chorus.

"Allowing other alternative fuels like sugarcane ethanol to compete fairly in the U.S. will save Americans money, cut dependence on Middle East oil and improve the environment," Leticia Phillips, the Brazilian Sugarcane Industry Association's North America representative, said in a statement.

Reporters Jean Chemnick and Manuel Quinones contributed.

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