Makers try to salvage $6 bln/year US ethanol subsidy

* Industry suggests redesign of expiring tax breaks

* Cost of fuel ethanol subsidies would fall

* One change could double corn ethanol’s market

* Foodmakers, green groups battle extension

By Charles Abbott

WASHINGTON, Oct 12 (BestGrowthStock) – With expiration of the tax
breaks looming at the end of the year, U.S. ethanol groups
broached a redesign of federal biofuels subsidies worth $6
billion a year with no clear path to success.

Their ideas, circulated among congressional offices as a
one-page memo, drew strong criticism from foodmakers,
environmentalists and deficit hawks on Tuesday.

Congress has a huge workload for a post-election session in
November. Ethanol backers pressed for a straightforward
extension of tax breaks during the regular season but made no
headway as Congress focused increasingly on deficit control.

“I think it is going to be difficult to gain traction,”
said Steve Ellis of Taxpayers for Common Sense, a
good-government group, in assessing ethanol’s chances in
November.

Meanwhile, the Obama administration is expected to decide
this week whether to allow a 15 percent blend of ethanol into
gasoline sold to late-model cars. The standard blend is 10
percent.

The ethanol outline suggested conversion of the current
45-cent a gallon fuel tax break into a tax credit for domestic
producers or a similar approach, but at lower cost. It also
said corn-based ethanol could qualify as an advanced biofuel,
which would more than double the potential market for it.

Two ethanol trade groups declined to discuss the document,
calling it a work in progress.

White House spokesman Shin Inouye said the administration
looked forward “to continuing to work with interested parties”
and hoped to make “solid progress in the near future” to
promote biofuels.

During a telephone news conference, Patrick Boyle of the
American Meat Institute, a trade group for meatpackers, said
ethanol groups were shopping for a one-year extension of the
current fuel-tax break at 36 cents a gallon, followed by
conversion to a producer credit worth 25 cents a gallon.

“It’s still a very, very expensive subsidy program,” Boyle
said.

Scheduled to expire this year are the 45-cent a gallon
fuel-tax credit, the 54-cent a gallon tariff on ethanol imports
and a 10-cent a gallon credit for small ethanol producers.

A $1.01 a gallon tax credit for cellulosic ethanol
producers expires at the end of 2011. A $1 a gallon credit for
biodiesel expired at the end of 2009 and has not been renewed
by Congress.

A third of U.S. corn is used to make ethanol.

Kate McMahon of environmental group Friends of the Earth
said nearly half the crop would be devoted to ethanol if use
rose by 5 billion gallons a year.

She said a surge in ethanol demand could be met in the
short term only by putting more land into corn with the threat
of increased chemical run-off.

Farm groups and a biotech group say a long-term rise in
corn yields as well as improved agronomy will meet the
challenge of producing more corn without crowding out other
crops.

Archer Daniels Midland Inc (ADM.N: ), privately held POET and
Valero Energy Corp (VLO.N: ) are the leading distillers. A 2007
law guarantees use of 12.95 billion gallons of renewable fuels
this year, almost all of it corn ethanol.

The target rises to 36 billion gallons in 2022, including
21 billion gallons of advanced biofuels.
(Editing by Dale Hudson)

Makers try to salvage $6 bln/year US ethanol subsidy