Isra-Mart srl: Senate poised for crucial ethanol tax break vote

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The row over whether to extend tax breaks worth an estimated $6bn a year to the US ethanol industry looks set to go down to the wire, as senators prepare to vote today on a plan that would eliminate tax credits and import tariffs for the industry.

The proposal from Republican senator from Oklahoma Tom Coburn is being fiercely opposed by the ethanol industry and some Democrat and Republican senators from farm belt states. However, it has also secured support from fiscal conservatives who regard the changes as a means of saving up to $6bn a year, and many green groups that are increasingly concerned ethanol is leading to higher food prices and resulting in limited greenhouse gas emission savings.

The amendment will need 60 votes to pass through the Senate and the vote is expected to be so tight that commentators are reluctant to call whether it will pass.

"Eliminating the ethanol tax earmark and tariff would be a big step toward restoring fiscal sanity in Washington," Coburn said yesterday. "Ethanol is bad economic policy, bad energy policy and bad environmental policy."

Representatives from the biofuel industry countered that cutting the credits would put thousands of jobs at risk and argued that the Senate should address tax breaks for oil producers before targeting ethanol.

Even if the amendment passes, the underlying bill is unlikely to pass through the House of Representatives, where it is expected to be blocked by representatives from farm states.

However, the vote could crank up pressure on the Obama administration to deliver on its promise to reform ethanol tax breaks and develop a more sustainable biofuel strategy.

One alternative being put forward by Republican senator John Thune and Democrat Senator Amy Klobuchar would see the ethanol tax credit phased out in favour of alternative incentives.

Under their proposals, the current 45-cent per gallon ethanol blender's credit would be allowed to lapse at the end of the year, while a smaller "variable" blender's credit would remain for three years.

The tax breaks would then only come into effect if oil prices fall below $90 a barrel, providing ethanol developers with greater certainty over their returns.