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Deal to end 45-cent ethanol credit seen this week

By Timothy Gardner

WASHINGTON (Reuters) - Three U.S. senators working on a framework to replace the $6 billion a year ethanol tax credit with far less costly incentives could strike a deal as soon as Thursday, Senate and industry sources said.

The agreement would be a significant step toward reforms for ethanol subsidies, but would offer some assistance to the ethanol industry as it loses the lucrative benefit.

"We are very close to a deal," Senator Amy Klobuchar of Minnesota, one of three senators working on the deal, said on Wednesday.

"A deal is likely as early as tomorrow," a Congressional aide with direct knowledge of the talks told Reuters.

Senators Dianne Feinstein of California and John Thune of South Dakota have been working with Klobuchar on a deal that would end the 45-cent per gallon blenders' tax credit. The deal would also likely end the import tariff on ethanol mainly from Brazil.

An ethanol industry group source said aides for the senators had also indicated that a deal could come this week.

Once the senators agree on a deal, it still would have to be passed by Congress.

A retooling of incentives could offer savings this year. Some of the savings could be used to pare down the deficit, and some money could help fund ethanol industry infrastructure improvements, such as blender pumps that could allow the industry to get more ethanol to market.

The push to reform ethanol subsidies is taking place as a larger agreement on the national debt is needed by late summer.

Blender pumps, which allow drivers to chose their own mix of fuel, from 10 percent to 85 percent ethanol, are the main infrastructure item industry groups want funds for. But some money could also go to pipelines or for advanced biofuels.

Feinstein, an opponent of ethanol subsidies, won a symbolic vote, 73-27, on June 16 to end the payments on July 1. She could not be immediately reached for comment about whether a deal could be struck this week. But last week she said a deal was close.

Klobuchar and Thune are backers of the ethanol industry. But as the call on Capitol Hill for spending cuts has grown louder, ethanol industry groups have decided to press for infrastructure benefits rather than the blenders' credit.

Federal mandates for corn ethanol are expected to keep rising until 2015, so the industry is confident it can keep growing the supply of ethanol made from grain until technologies to make the fuel from non-food crops take root.

An aide for Senator Tom Coburn from Oklahoma, a leading opponent of ethanol, said he knew of no deal in the making. Coburn had worked with Feinstein previously on repealing the subsidy. But he left the talks later because he opposed a deal in which the ethanol industry would get infrastructure incentives.

(Reporting by Timothy Gardner; Editing by Lisa Shumaker)

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