Three senators reached a deal on Thursday to repeal the $6 billion-per-year ethanol tax credit by the end of July, an agreement that must still be passed by Congress.
The loss of the subsidy could add extra costs for ethanol blenders such as Valero Energy and Marathon Oil, but it is unlikely to reduce demand for corn.
"This agreement is the best chance to repeal the ethanol subsidy, and it's the best chance to achieve real deficit reduction," said Sen. Dianne Feinstein from California, who made the deal with Sens. John Thune from South Dakota and Amy Klobuchar from Minnesota.
Government mandates require increasing amounts of the corn-based fuel until 2015. The ethanol industry uses some 40 percent of the U.S. corn crop to make the alternative motor fuel.
The deal would reduce the federal deficit this year by $1.33 billion and direct $668 million to extend tax breaks for technologies to help alternative motor fuels including biofuels get to market, Feinstein said.
Model for other tax credit cuts? The call on Capitol Hill to reduce tax breaks for ethanol and other industries has increased as President Barack Obama and Republicans in Congress search for ways to break the budget deadlock.
Feinstein won a symbolic vote in the Senate, 73-27, on June 16 to end the payments on July 1.
The path for the deal to become law is still uncertain. It could be attached to a standalone tax bill or become part of a wider measure to raise the federal debt limit. … Read more