Deal reached to end federal ethanol subsidy

Key lawmakers in the U.S. Senate said Thursday they have reached an agreement to end two major ethanol supports by the end of the month but devote nearly $700 million to helping to develop next-generation biofuels.

The lawmakers praised the deal, saying it would cut the deficit and lower dependence on foreign oil. A major renewable fuels group, however, said although the deal represented a model of bipartisan cooperation, it expressed concerns about capping support for cellulosic ethanol.

The senators have been in talks for weeks over ethanol subsidies, as ethanol detractors have sought unsuccessfully to win votes in the Senate to kill the subsidies immediately.

The bipartisan deal announced Thursday morning would end the 45-cent-a-gallon credit that goes to blenders using ethanol by the end of July. It also would end the 54-cent-a-gallon fee levied on imported ethanol on July 31. That will be a boon to Brazil's ethanol industry.

Three senators said in statements Thursday the deal would allow them to devote $1.3 billion to deficit reduction. Another $668 million would go to renewable fuel incentives, according to a statement put out by Sens. Amy Klobuchar, D-Minn., and John Thune, R-S.D.

A separate statement from Sen. Dianne Feinstein, D-Calif., also heralded the deal.

Critics of the ethanol subsidy have argued it's a wasteful boon to an industry that should be able to support itself. But supporters say it's a worthwhile investment that eases reliance on foreign oil and creates jobs in the Midwest.

The agreement still must be approved by the full Senate and House, as well as the White House. It comes at a time when Congress and the White House are deep into negotiations about reducing the federal debt as part of a deal to raise the debt ceiling.

Bob Dineen, president of the Renewable Fuels Association, said in a statement “this is not the perfect compromise,” but it does show a willingness for compromise that doesn't sacrifice the industry.

The group said it's pleased the agreement will devote $305 million to cellulosic ethanol but expressed concern that “capping” its development will send the wrong signal. It said it would work with Congress and the Obama administration on the matter.