U.S. ethanol makers seek renewal of tax breaks

* Major U.S. ethanol incentives expire Dec. 31

* Renewal more likely in 2011 than this fall – analyst

* Industry says will accept lower-cost support

* Oil refiners, greens, foodmakers criticize ethanol

By Charles Abbott

WASHINGTON, Oct 19 (BestGrowthStock) – Attacked as subsidy addicts,
U.S. ethanol makers may need help from friends in high places,
including the White House, to hold on to lucrative tax breaks
set to expire at the end of the year.

The industry says it is ready to discuss revisions in the
incentives, worth $6 billion a year. An amalgam of foodmakers,
livestock producers, environmentalists and deficit hawks say
there is no need for subsidies because biofuels are guaranteed
by law a share of the motor fuel market.

“The ethanol industry is addicted to subsidies,” said Steve
Ellis of Taxpayers for Common Sense, a good-government group.
“It’s time for the decades-old ethanol party to end.”

Corn-based ethanol is a Farm Belt favorite, valued as a
home-grown fuel that reduces reliance on imported oil and
creates jobs and income for rural areas. Rural lawmakers back
ethanol as a success story.

The average ethanol plant employs 40-50 people and spends
$130 million a year on supplies, wages and transport. With 204
plants nationwide, that amounts to thousands of jobs and
billions of dollars in outlays.

The largest ethanol makers are privately owned POET, Archer
Daniels Midland Co (ADM.N: ) and Valero Energy Corp (VLO.N: ).

“Ethanol is an expanding market, unlike some of our
traditional customers,” said Jon Doggett of the National Corn
Growers Association.

In Congress, backers include Democrat Collin Peterson,
chairman of the House Agriculture Committee, and Charles
Grassley, the Republican leader on the Senate Finance
Committee, which oversees tax law.

The farm bloc has influence because rural districts often
are a pathway to control of the House. Two-thirds of the most
competitive House races are in rural districts this year.

“I think it would be very irresponsible to take away an
incentive overnight,” Jeff Broin, head of POET, told Reuters in
an interview. “We’re working hard with the White House (and)
dozens of lawmakers to get a solution as soon as possible.”

The last chance this year would be the brief congressional
session set after the Nov. 2 mid-term elections, when an
omnibus tax bill could be a vehicle for ethanol incentives.
However, an anti-spending mood has blocked revival of a $1 a
gallon biodiesel credit and could affect ethanol too.

‘WORK IN PROGRESS’

Corn growers and ethanol trade groups back a one-year
extension of the excise tax credit for ethanol, to be followed
by revisions to lower the cost of supports.

The tax credit, now 45 cents a gallon, is the largest of
the expiring incentives. Also expiring are the 54-cent tariff
on ethanol imports and a 10-cent credit for small producers.

One industry suggestion is to convert the excise tax credit
to a producer tax credit at a lower rate. Other changes could
include opening the door for corn ethanol to qualify as an
advanced biofuel, which could more than double its sales; a
fund to help pay for so-called blender pumps; and loan
guarantees for an ethanol pipeline. [ID:nN12130220]

“It is very much a work in progress, but we all agree
extending the tax incentive is critical,” said a spokesman for
one of the groups, the Renewable Fuels Association.

Analyst Divya Reddy of Eurasia Group said in a research
note that a one-year extension was more likely early next year
than in the fall session. Reddy noted proposals to set the tax
credit at 36 cents and create a 25-cent production credit.

Trade groups, already at odds over how to get higher
ethanol blends onto the market, split in July when a long-term
extension of the tax breaks stalled in Congress.

Growth Energy proposed a phase-out of tax credits if an
“open market” for ethanol were created through federal support
of blender pumps and production of millions of vehicles that
can burn higher blends of the alternative fuel.

The Obama administration “believes in continued financial
support for biofuels that can help us meet our energy security
and environmental goals”, White House energy advisor Heather
Zichal wrote in an Oct. 8 blog.

She said the White House and the industry were exploring
options for reform of subsidies.

In July, a think tank at Iowa State University said ethanol
output would fall 7 percent in 2011 if the tax credit and
import tariff lapsed. Six percent of plant capacity is now
idle, the result of economic slowdown and a 2008-09 shakeout.

Livestock producers, meatpackers and foodmakers attacked
ethanol after grain prices surged in 2006. Oil refiners joined
foodmakers and environmentalists to oppose E15, a 15 percent
blend of ethanol approved last week for newer cars and trucks.

The National Petrochemical and Refiners Organization said
U.S. environmental watchdogs had become “the Ethanol Promotion
Agency”.

Purdue University agricultural economist Wally Tyner said
high grain prices drove up feed costs for livestock producers.

“With corn up more than $2 this summer and one-third of the
crop going to ethanol, they will continue to fight ethanol,”
Tyner said. “Ethanol plants can still make money with high corn
prices so long as ethanol keeps going up with corn.”
(Editing by Dale Hudson)

U.S. ethanol makers seek renewal of tax breaks