Washington—Senator Dianne Feinstein (D-Calif.) has reached an agreement with Senators Amy Klobuchar (D-Minn.) and John Thune (R-S.D.) to repeal the nearly $6-billion-a-year ethanol subsidy and end the tariff on foreign ethanol by the end of this month. The agreement will reduce the federal deficit by $1.33 billion and invest $668 million in new technologies to reduce U.S. dependence on oil.

“This agreement is the best chance to repeal the ethanol subsidy, and it’s the best chance to achieve real deficit reduction. Absent this agreement, taxpayers stand to lose $1.33 billion—that was the bottom line for me," said Senator Feinstein.

“Every month that passes without repeal costs taxpayers $400 million. After years of fighting, there is simply no guarantee a full repeal would be signed into law.

“I believe this bipartisan agreement should be included in the deficit reduction package that will likely accompany a vote on raising the debt limit, and I hope the president will consider that approach.”

Under the agreement outlined in a letter to Majority Leader Harry Reid and Minority Leader Mitch McConnell sent Thursday morning:

• The 45-cent-per-gallon ethanol blender credit (VEETC) will be repealed on July 31, saving $2 billion through the remainder of 2011.
• The 54-cent-per-gallon tariff on ethanol imports will also expire on July 31.
• The tax credit for cellulosic biofuel production, currently set to expire at the end of 2012, will be extended for three years, with annual caps on gallons, and will be expanded to include promising fuels from algae. This will allow the non-corn advanced biofuels industry— the cleanest form of vehicle fuel—to emerge and develop.
• Reduced tax credits for alternative fueling infrastructure, including electricity charging stations and natural gas fueling stations, will be extended through 2014. The small-producer tax credit will expire at the end of 2012, with a reduction in the per-gallon credit.

Full text of the letter Sens. Feinstein, Klobuchar and Thune sent to Majority Leader Reid and Minority Leader McConnell follows:

July 7, 2011

The Honorable Harry Reid
Majority Leader
S-211, The Capitol
Washington, DC 20510

The Honorable Mitch McConnell
Minority Leader
S-230, The Capitol
Washington, DC 20510

Dear Majority Leader Reid and Minority Leader McConnell:

We are writing to inform you that we have reached a compromise that will repeal the current ethanol blender subsidy and tariff, as of July 31, and invest two-thirds of the savings in deficit reduction and one-third of the savings in tax incentives that increase our energy independence. 

The deficit savings of $1.33 billion and the fully offset extension to these tax incentives would not be otherwise available if we were unable to come to an agreement that repeals the 45-cent per gallon ethanol blender credit immediately.  Leaving the ethanol blender subsidy in place until the end of 2011 would cost taxpayers nearly $2 billion over the next five months, which we believe can be redirected for more beneficial purposes.

The agreement includes:

• Repeal of the 45-cent per gallon ethanol blender credit (VEETC) on July 31, saving $2 billion over the next five months.

• Repeal of the 54-cent per gallon tariff on ethanol imports on July 31.

• Cellulosic Biofuel Production Tax Credit (currently expires 12/31/2012)
  • 3 year extension of $1.01 per gallon credit (to 12/31/2015).
  • Annual cap of 50 million gallons in 2013, 100 million gallons in 2014, and 155 million gallons in 2015.  Unused gallons roll to the next year.
  • Includes depreciation allowance for cellulosic plants, and expands the definition of cellulosic biofuel to include fuels from algae.
  • Score: $308 million

• Alternative Fueling Infrastructure Tax Credit (currently expires 12/31/2011)
  • 3 year extension (to 12/31/2014), modified as proposed in S. 1185.
  • Investment Tax Credit reduced from 30% to 20%, effective 1/1/2012.
  • Covers technology neutral investments in electricity charging stations, blender pumps, or natural gas fueling stations, as specified in 26 USC 30C.  Joint Committee on Taxation estimates that approximately half of qualifying investments will be in non-ethanol infrastructure.
  • Score: $253 million

• Small Producer Tax Credit (currently expires 12/31/2011)
  • 1 year extension (to 12/31/2012).
  • Per gallon credit reduced from 10 cents to 7 cents per gallon.
  • Score: $107 million

The compromise invests $668 million in these tax credit extensions, fully offset, while providing $1.33 billion in deficit reduction.  If Congress fails to enact this proposal before it adjourns for August recess, the substantial levels of deficit reduction and investment achieved by this compromise will no longer be possible, and we cannot commit our support after that point.   Therefore, we ask for your assistance in moving this agreement through Congress before we adjourn.

We look forward to working with you to reduce the deficit and improve our energy tax policies.

Sincerely,

Dianne Feinstein, United States Senator
John Thune, United States Senator
Amy Klobuchar, United States Senator

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