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U.S. Ethanol Industry to Keep Subsidies Until End of 2011

Aug. 1 (Bloomberg) -- U.S. ethanol subsidies aren’t affected by a congressional agreement to lift the country’s debt limit that may be voted on by both chambers today, according to industry groups.

The 45-cent tax credit for each gallon of the biofuel blended into gasoline and the 54-cent tariff on Brazilian imports, due to expire Dec. 31, will stay in place for now, according to the Renewable Fuels Association and Growth Energy, Washington-based industry trade groups. Industry subsidies total $6 billion a year.

“Ethanol is out of this deal,” Matt Hartwig, spokesman for the Renewable Fuels Association, said in an e-mail. “Whether it is part of the ongoing efforts as part of the super committee structure remains to be seen.”

Senator Dianne Feinstein, a California Democrat, forged a July 7 deal with Senators Amy Klobuchar, a Minnesota Democrat, and John Thune, a South Dakota Republican, to eliminate the government supports and to include it as part of the deficit-reduction package. The agreement proposed to reduce federal deficit by $1.33 billion and to dedicate $668 million to biofuels and new technologies.

“We have to have a tax vehicle to put it on and we don’t have a tax vehicle,” Feinstein said to reporters today. “There’s nothing we can do.”

Tom Buis, chief executive officer of Growth Energy, called the agreement’s failure “unfortunate” and said his group will push for it to be included in subsequent legislation.

More Refining Demand

Major ethanol refiners such Poet LLC in Sioux Falls, South Dakota, Archer Daniels Midland Co. in Decatur, Illinois, Valero Energy Corp., and Green Plains Renewable Energy Inc. may see more demand from gasoline distributors looking to pocket the tax credit before it expires Dec. 31, said Terry Reilly, an analyst at Citigroup Global Markets Inc. in Chicago.

“For the ethanol blender, it shows that they can increase profit a little bit,” Reilly said. “Profit still exists if you left everything in, it’s just more incentive now.”

Denatured ethanol for August delivery fell 5.1 cents, or 1.8 percent, to settle at $2.84 a gallon on the Chicago Board of Trade. Futures have gained 19 percent this year.

Ethanol traded at a 21.4-cent discount to gasoline. The spread between the two was 50.6 cents on July 7, when the senators forged the compromise.

The U.S. is required to use 12.6 billion gallons of ethanol this year and 15 billion gallons by 2015 under an energy law signed in 2007, known as the Renewable Fuels Standard.

To contact the reporter on this story: Mario Parker in Chicago at

To contact the editor responsible for this story: Dan Stets at

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