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Will the ethanol tax credit shrink?

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

“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 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.

The White House remains supportive, he said, and he told the
Expo Thursday that it’s looking at ways to use unspent funds from the bank
bailout for incentives to install blender pumps.

And, Dineen said, the fact that the House Ways and Means
Committee proposed a 20% cut to the ethanol tax credit,  to 36 cents a gallon, is a good sign.
In years past, the Committee opposed any tax credit at all, he said.

“This is the beginning of the process, not the end,” Dinneen



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