The ethanol industry unveiled its latest offer for ethanol policy reform on June 13 with the introduction of legislation by Sens. John Thune, R-S.D., and Amy Klobuchar, D-Minn., to convert the current 45-cent-per-gallon Volumetric Ethanol Excise Tax Credit to a variable credit based on oil prices. While similar to legislation introduced last month by Sen. Chuck Grassley, R-Iowa, the new bill steps up the timeline, offering to modify the existing credit program beginning on July 1 rather than after its scheduled expiration at the end of the year. And while Grassley’s bill would continue VEETC at a fixed reduced rate until 2013, Thune and Klobuchar’s bill offers an immediate conversion to a variable rate. The Thune-Klobuchar bill, titled the “Ethanol Reform and Deficit Reduction Act,” would also increase tax incentives for biofuels infrastructure, allowing blender pumps to qualify for tax credits and extending the current E85 infrastructure tax credit through 2016.

Klobuchar said reforming VEETC in July rather than January will reduce the deficit by $1 billion this year and allow for the transition to a more sustainable incentive model for biofuels production. “Our bipartisan legislation would provide businesses a clear glide-path to move forward and keep the biofuels industry competitive while reducing our debt,” she said in a statement. Thune said the “commonsense approach” taken in the legislation toward biofuels infrastructure expansion and deficit reduction will benefit consumers. “Despite the important role they play in powering our economy, the renewable energy industry understands the challenging fiscal condition our nation is in and is more than willing to make necessary adjustments.”

In addition to the changes to VEETC and infrastructure support, the bill would also extend the 10-cent-per-gallon small producer ethanol credit and the $1.01 per gallon cellulosic biofuels tax credit through 2014.

All of the major ethanol industry groups have endorsed the legislation, as has the National Corn Growers Association. The Renewable Fuels Association heralded the bill as being “thoughtful, responsible legislation” that addresses the need for budget reform and continued policy to encourage domestic alternatives to foreign oil. Brian Jennings, executive director of the American Coalition for Ethanol, said that while the bill is not perfect, it contains necessary and important policy changes to improve consumers’ access to midlevel blends of ethanol and continue to support the commercialization of next-generation biofuels. “The legislation essentially sacrifices the ethanol blenders’ credit to catalyze next-generation biofuels and level the playing field with oil with one half of the market access puzzle - blender pumps,” he said. “The other half of the market access puzzle, flexible fuel vehicles, will need to be addressed separately.” The key to any ethanol policy reform is market reform, according to Growth Energy CEO Tom Buis, who said that is accomplished in this legislation. “It reforms the market, which is ultimately what we want: access to the market, in exchange for reducing and eventually eliminating the VEETC,” he said. “Today’s ethanol industry can compete - and beat - oil, but only if we have that market access. And once we have that access to the market, we’ll see that private capital investment into developing cellulosic ethanol.”

The bill is co-sponsored by 13 other senators, including Grassley, who spoke out in favor of the legislation and its plan to assist with infrastructure expansion during a floor statement on June 13. “I know that when American consumers have the choice, they will choose domestic, clean, affordable renewable fuel,” he said. “They’ll choose fuel from America’s farmers and ranchers, rather than oil sheiks and foreign dictators.”

Grassley also commended the ethanol industry for being proactive in policy reform to reduce the deficit. “In an almost unprecedented move, the ethanol industry is advocating for a reduction in their federal incentives. No other energy industry has come to the table to reduce their subsidies. No other energy lobby has come to me with a plan to reduce their federal support,” he said.

Other co-sponsors of the bill include: Mike Johanns, R-Neb., Tom Harkin, D-Iowa, Dick Lugar, R-Ind., John Hoeven, R-N.D., Tim Johnson, D-S.D., Jerry Moran, R-Kan., Ben Nelson, D-Neb., Al Franken, D-Minn., Mark Kirk, R-Ill., Dan Coats, R-Ind., Richard Durbin, D-Ill., and Claire McCaskill, D-Mo.

The National Corn Growers Association, which has become known in recent months for its role in moderating policy reform talks among the ethanol groups, said in a statement that it became necessary to propose legislation to reform ethanol policy earlier than what was offered in Grassley’s bill due to increasing budget concerns. “NCGA supports this legislation and will continue to look for ways to reform,” NCGA President Bart Schott said. “We look forward to working with our allies in the Senate to ensure passage.”

Other companies affiliated with the ethanol industry have also voiced their support for the bill, including global enzyme developer Novozymes. “This policy will help promote the continued development of alternative fuel infrastructure and biofuels production to meet the renewable fuel standard, and will accelerate the ability for biofuels to compete on the open market with oil,” Adam Monroe, Novozymes North America president, said.

While passing any legislation in the current political climate can prove to be quite difficult, ethanol representatives expressed confidence that the Thune-Klobuchar bill will pass. Jennings said the bill “stands as good of a chance as any” of being passed and is benefited by its bi-partisan support and its inclusion of a mix of policies for consumer infrastructure expansion and next-generation biofuels incentives. Buis said he also believes there is a good chance the bill could become law. “There is strong bipartisan support for reducing our dependence on foreign oil, and saving consumers money at the pump,” he said. “Senators who want to achieve those goals will vote for the Thune-Klobuchar bill. Those with an appetite for reducing the deficit will vote for Thune-Klobuchar as well, because the goal is to eventually allow ethanol to compete against oil in a genuinely reformed marketplace without government assistance - or interference.”