June 28, 2011 / 10:08 PM / 8 years ago

Senate trio works on ethanol subsidy overhaul

WASHINGTON (Reuters) - Three senators are working on a legislative framework to replace the $6 billion a year U.S. ethanol tax credit with far less costly incentives such as helping retailers pay for so-called blender pumps.

The package could terminate the excise tax credit as early as July 1, an industry insider said on Tuesday. He said the challenge for biofuels is how to expand sales and a key way is to introduce pumps that would allow drivers to choose blends from 10 to 85 percent ethanol.

Because the retooling of the incentives would save money this year, savings could be written into an agreement on reducing the federal debt. An agreement on the debt is needed by late summer.

“All sides continue to talk but ... no deal has been reached,” said a spokesman for John Thune of South Dakota. The other senators in ethanol discussions are Amy Klobuchar of Minnesota and Dianne Feinstein of California.

Feinstein won a symbolic vote, 73-27, on June 16 to end ethanol subsidies on July 1. Klobuchar and Thune back biofuels. The ethanol industry operates primarily in the corn-growing Midwest.

Aides to Feinstein and Klobuchar had no immediate comment on the negotiations. Senator Tom Coburn of Oklahoma, a leading ethanol foe, was not part of the talks.

“The Hill” newspaper quoted Feinstein as saying, “I think there will be agreement” to terminate the 45-cent a gallon excise tax credit and 54-cent import tariff as of July 1 and to provide incentives for next-generation feedstocks.

Some biofuels backers want to replace the 45-cent credit with a variable incentive tied to the oil price and worth a maximum 30 cents a gallon.

Speedy termination of the credit would generate the largest savings for deficit reduction — perhaps $1 billion this year — but also as much as $2.5 billion to defray the cost of blender pumps.

Reporting by Charles Abbott and Timothy Gardner; Editing by David Gregorio

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