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Ethanol group favors shifting tax credit to new ways to reach consumers

The clock is ticking for a 45 cent-a-gallon ethanol tax credit that expires at the end of this year. The best chance to get it renewed before the November election may be in an energy bill leaders of the U.S. Senate want approved by the end of July.

Thursday, one group that represents the ethanol industry, Growth Energy, proposed shifting some of the more than $7 billion a year that the credit costs the federal government and using part of it to give incentives for building an ethanol pipeline from the Midwest to more urban areas on the coasts, for building more flexible fuel vehicles that can burn up to 85% ethanol, and for installing blender pumps that dispense different mixtures of gasoline and ethanol.

Senators from the Midwest are already fighting to get the tax credit extended.

"I don't want to happen to ethanol what has happened to biodiesel this particular year," said Senator Chuck Grassley (R-IA) earlier this week, referring to the $1 a gallon biodiesel credit that expired in 2009 and still hasn't been renewed in Congress. Mush of that industry is shut down. Grassley is among several members of Congress backing legislation that would extend the ethanol tax credit another 5 years.

Keeping the tax credit also has the support of Senator Tom Harkin (D-IA), who told reporters Thursday that "I think we’re going to be able to keep the subsidies."

But privately, some in the industry say they think ethanol will be lucky to get a 1-year extension, and that the credit could be shaved, perhaps to 35 cents a gallon.

Former Iowa Congressman Jim Nussle is on the board of directors of Growth Energy and was at the announcement of the group's "Fueling Freedom" plan Thursday. It calls for tax credits  to install 200,000 blender pumps across the U.S. and federal guarantees for financing ethanol pipelines. And it would require that all cars sold in the U.S. have flexible fuel capability, at no cost to taxpayers and about $120 per vehicle.

When asked if there is a chance that Congress would lower the amount of the tax credit if it's extended this year, Nussle told, "Yes, is the answer and part of the reason we’re making the proposal we are."

Nussle worries about the possibility of the industry getting moe and more "haircuts" to trim the tax credits, with no support for ways to reach consumers and to compete with gasoline in the marketplace.

"If that's true, then let's look at creative ways to use this haircut to invest in infrastructure," he says.

Growth Energy's co-chair, Jeff Broin, who is CEO of the ethanol company, POET, suggested that the industry will be able to shift to an open market over time.

"Ethanol is already competitive with gasoline," he said Thursday. "For most of this year, it has been 50 to 80 cents below the cost of gasoline and is saving money for consumers at the pump. In an open market, consumers would be able to save more money by increasing their use of ethanol, and we believe that they would."

Other ethanol groups don't seem to be jumping on board the push for shifting ethanol tax credits to building infrastructure.

The American Coalition for Ethanol, the Renewable Fuels Association, the National Corn Growers Association and the National Sorghum Producers all voiced support for legislation that would extend the current tax credit for another five years.

"The universal response we have received from our champions on Capitol Hill is that while some of those alternatives are interesting, those alternatives cannot possibly be adopted at this stage in the legislative calendar, with just about 30 days remaining until Congress adjourns for the mid-term elections," Brian Jennings, executive vice president of the American Coalition for Ethanol said in a statement released by the four groups.

At his press conference Thursday, Harkin said that he would like to see support for blender pumps, flexible fuel vehicles, ethanol pipelines and allowing corn ethanol to be considered an advanced biofuel which would make it possible for it to go beyond the current 15 billion gallon mandate for ethanol use in gasoline.

"To me those are almost bottom line things that have to be in an energy bill," Harkin said.

Harkin may have some work ahead of him to convince the chairman of the Senate Energy and Environment Committee, Jeff Bingaman (D-NM) to extend the tax credit, known as the Volumetric Ethanol Excise Tax Credit (VEETC).

On Wednesday, the Congressional Budget Office released a report on the cost of biofuels tax credits that drew this response from Bingaman:

"This report by the nonpartisan Congressional Budget Office provides further evidence that our nation's biofuels tax incentives might not be appropriately calibrated.  In particular, CBO's findings should prompt Congress to critically examine whether it is appropriate to extend the Volumetric Ethanol Excise Tax Credit (VEETC) at its current 45-cents-per-gallon level beyond the credit's December 31 expiration."

See the rest of Bingaman's statement here.

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