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The ethanol industry would lose two major subsidies - a lucrative tax break and a tariff on imported ethanol - under a deal reached Thursday in the U.S. Senate.

Meanwhile, two smaller programs would be expanded: one promoting cellulosic ethanol and another subsidizing pumps that can blend higher levels of ethanol.

The deal was brokered by Sen. Amy Klobuchar, D-Minn., and Sen. John Thune, R-S.D., and it shows how dramatically the ground has eroded beneath the corn-based ethanol industry. Once a darling in Washington, the industry faced the loss of its entire web of federal support if it didn’t give ground to help cut the budget deficit.

“I think Sen. Klobuchar and Sen. Thune have done a fantastic job of getting what they could,” said Tom Buis, head of the ethanol trade group Growth Energy. “It doesn’t mean they didn’t try to get more.”

If Congress approves, the deal won’t change ethanol’s presence at the pump. As long as governments require its use - and they still do, for environmental, national security and economic reasons - ethanol will remain a fixture.

But ethanol’s reign as the golden child seems finished, after three decades of support that helped built a sprawling industry. More than 200 ethanol plants now dot the United States, including 21 in Minnesota, a point of pride for supporters.

“This is 10 percent of our nation’s fuel supply, and it comes from the Midwest,” Klobuchar said. “We’re trying to get some stability (for the industry going forward.”
But its growth came at a price. Nearly 40 percent of the U.S. corn crop now heads to ethanol plants, leaving other grain users screaming as food prices, feed costs and land prices rise.

Thursday’s Senate deal broked by the two farm-state lawmakers removes two pillars that have sheltered the industry. First is a $6 billion-a-year blender’s credit, designed to make ethanol more competitive with gasoline. That credit reduces prices at the gas pump by about 5 cents a gallon. The credit was scheduled to expire at year’s end; the deal would end it July 31, with most of the savings earmarked to cut the deficit.

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