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Will the ethanol tax credit shrink?

DANIEL LOOKER 10/07/2010 @ 5:02pm Business Editor

Distiller grains from the ethanol industry are one of the big growth sectors in agriculture, if the Export Exchange in Chicago this week is on track. Speakers at the joint meeting of the U.S. Grains Council and Renewable Fuels Association paint a bullish picture: crude oil prices above $100 a barrel a year from now, distillers grain exports passing up soybean meal exports soon, and China perhaps importing 3 million metric tons of the ethanol byproduct in the marketing year that started September 1, up from just 600,000 tons in calendar year 2009.

But there’s a big problem hanging over the meeting that has drawn potential buyers from Asia, Latin America and the Middle East. The 45 cent-a-gallon tax credit that makes ethanol more attractive to gasoline blenders expires December 31.

Renewable Fuels Association president Bob Dinneen painted a dire picture for the industry if it’s not renewed. About 37% of the industry would shut down or be temporarily idled, he said—costing the economy more than 100,000 jobs and trimming the value of corn by 8%. And it would cut production of distillers grains by a third, by 13 million metric tons.

Dinneen reminded Expo guests that the $1-a-gallon tax credit for biodiesel expired last year and still hasn’t been renewed by Congress.

“That industry has suffered enormously. Tens of thousands of jobs have been lost. We can’t let that happen,” he said.

Officially, the RFA is lobbying in Washington to get the tax credit extended at the current level for at least another year. But reports are circulating that the ethanol industry might compromise for something else.

After his speech Thursday, Dinneen was asked if there’s any discussion in Washington on reducing the size of the tax credit below 45 cents and if there is a coalition pushing that agenda.

“There have been a number of discussions with the Administration and on Capitol Hill over the last several months,” Dinneen responded.

“We’re going to try to find how we can reform the existing program in a way that is responsive to costs,” Dinneen said.

Earlier this year a rival ethanol group, Growth Energy, proposed shifting some of the federal funding lost from the tax credit to building up infrastructure that will help sell ethanol, including pipelines, more blender pumps and more flexible fuel vehicles. RFA and most of the rest of the industry has argued that there isn’t time to make big changes in support for ethanol before the end of this year. Instead, they’ve been pushing for at least a one-year extension of the existing tax credit.

Dinneen told Agriculture.com that as the ethanol industry has expanded to other states, including Texas, California and parts of the Southeast, political support for the industry has, in fact, grown.

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