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Published December 19, 2010, 08:33 PM

Tax Cuts Package Extends Ethanol Incentives

Ethanol supporters in the Dakotas are praising tax cuts passed last week in Washington for extending alternative fuel incentives.

By: Nomaan Merchant, Associated Press

SIOUX FALLS, S.D. (AP) — Ethanol supporters in the Dakotas are praising tax cuts passed last week in Washington for extending alternative fuel incentives.

The $858-billion package includes a one-year extension on a tax credit that pays 45 cents per gallon for ethanol blended into gasoline, a move that's estimated to cost about $6 billion. Congress also extended a tariff on foreign-made ethanol.

Industry officials say the credits help ethanol stay competitive with oil and preserve jobs tied to ethanol plants.

"We still need to have incentives for oil companies and gas stations to buy ethanol," said Ron Lamberty of the Sioux Falls-based American Coalition for Ethanol. "We're in a situation where we can make more than 10 percent of the fuel that goes into cars."

Several senators tried to strip down ethanol subsidies in the final package, but were unsuccessful.

South Dakota's entire Congressional delegation and Sen. Kent Conrad, D-N.D., voted for the final tax cuts. Rep. Earl Pomeroy, D-N.D., and Sen. Byron Dorgan, D-N.D., voted against the bill. The U.S. House passed the package just before midnight Thursday, and President Barack Obama signed the bill into law Friday afternoon.

Local and national industry officials say they need the help to compete with oil producers.

"All this does is level the playing field with an industry that has a 90 percent market share," said Lisa Richardson of the South Dakota Corn Growers Association, which estimates ethanol creates hundreds of jobs statewide.

The major national ethanol subsidy — called the Volumetric Ethanol Excise Tax Credit, or VEETC — pays 45 cents per gallon to ethanol blenders. Ethanol supporters estimate that leads to a 4.5 cent per gallon decrease at the pump.

The tax-cut package also extends credits for small ethanol producers and owners of alternative fuel vehicles. And it keeps a tariff of 54 cents per gallon on ethanol made outside the United States.

A handful of senators have tried to have those subsidies pared down. Sen. Dianne Feinstein, a California Democrat, offered an amendment earlier this month to cut both the tax credit and the tariff to 36 cents. The amendment later failed. One national environmental group, Friends of the Earth, called the subsidies "a giveaway to corn ethanol."

In a conference call with reporters, Sen. John Thune, R-S.D., said the ethanol credits are "very important to South Dakota." And Kristi Noem, a Republican who will replace Rep. Stephanie Herseth Sandlin in January and promised to push for spending cuts, said she supports leaving the subsidies in place.

"Washington has a real spending problem . but failing to extend these tax and tariff policies will only increase our dependence on foreign sources of oil, which is something we truly cannot afford," Noem said in a statement.

The extension drew praise from Poet, the Sioux Falls-based ethanol producer. "By extending the ethanol tax credit, our government showed that it remains firm in its commitment to renewable fuel and rural jobs," Jeff Lautt, Poet's executive vice president of corporate operations, said in a statement.

But Cole Gustafson, a professor of agribusiness at North Dakota State University, questioned how effective a one-year extension of ethanol subsidies would be.

"It is clear that these tax credits do have an impact on ethanol profitability and performance," Gustafson said. "My concern with the package that was approved is that it's a one-year time frame. It doesn't provide much assurance to investors."

A better investment, Gustafson said, would be in cellulosic ethanol — which is produced from wood and other non-edible parts of plants — rather than corn-based ethanol.

"One part of the industry is doing reasonably OK; the other part is struggling to establish itself," he said.

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