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U.S. House Said to Consider Reducing Ethanol Subsidy

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U.S. House Said to Consider Reducing Ethanol Subsidy

July 16, 2010, 4:41 PM EDT


July 16 (Bloomberg) -- The U.S. House Ways and Means Committee has proposed reducing the tax credit that helps support the ethanol industry by 20 percent to cut spending, according to two people familiar with the matter.

Refiners and blenders would receive 36 cents for every gallon of ethanol blended into gasoline, down from the 45 cents they currently pocket, said the people, who declined to be identified because the proposal hasn’t been made public. The tax credit expires this year and the committee is proposing to extend it a year.

Reducing the credit was a way to compromise with members of the committee who didn’t want to extend the incentives, the people said, and it could be attached to a legislative package for so-called green jobs within the next three weeks. The bill would also extend the 54-cent tariff slapped on Brazilian imports for one year.

“Clearly, the industry has to look at the likelihood that the tax credit isn’t going to be there forever,” said Mark McMinimy, an analyst at Concept Capital Washington Research Group. “That day may be sooner rather than later.”

The one-year extension and reduction would be short of the five years sought in a bill that Senators Charles Grassley, an Iowa Republican, and Kent Conrad, a North Dakota Democrat, introduced in April.

McMinimy said the discussion on extension rather than elimination shows support for ethanol.

“The most important thing is that a significant incentive would remain under that proposal to use ethanol,” he said today in a telephone interview.

Shimkus-Pomeroy Bill

Congressmen John Shimkus, an Illinois Republican, and Earl Pomeroy, a North Dakota Democrat, introduced companion legislation in the House in April for the ethanol incentives, a bill that was endorsed by the Washington-based Renewable Fuels Association, the industry’s largest trade group.

“The RFA continues to support the legislation introduced by Earl Pomeroy and John Shimkus that extends the current tax incentives through 2015,” Matt Hartwig, a spokesman for the group, said in an e-mailed statement.

Ethanol industry advocates have pushed to avoid what happened to biodiesel. Production of biodiesel has ground to a near-halt since its $1-a-gallon incentive expired at the end of last year, according to the National Biodiesel Board.

Growth Energy, the ethanol lobby that last year asked the U.S. to raise the allowable limit of the fuel in gasoline, requested yesterday that the tax credits be redirected to building out distribution infrastructure, such as pumps, pipelines and flex-fuel vehicles.

Poet LLC, in Sioux Falls, South Dakota, is the largest U.S. ethanol producer, followed by Archer Daniels Midland Co. in Decatur, Illinois. Valero Energy Corp., in San Antonio, is the third-biggest U.S. ethanol company.

--With assistance from Ryan J. Donmoyer in Washington. Editors: Richard Stubbe, Bill Banker.



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