Things are heating up in the lame-duck Congress regarding tax breaks. Sen. Baucus included language in a bill that was shot down in a Saturday vote in the Senate. Here's hoping some version of these tax credits get included in compromise bills worked out over the remaining days of the session.

The bill included one-year extensions for ethanol policies. The blenders credit would be extended through 2011 at a rate of 36 cents per gallon, while the small producers credit would be extended at a rate of 8 cents per gallon. The bill also extends through 2011 the existing 14.27 cents per liter (54 cents per gallon) tariff on imported ethanol and the related 5.99 cents per liter (22.67 cents per gallon) tariff on ethyl tertiary-butyl ether (ETBE).

For biodiesel, the bill extends through 2011 the $1 per gallon production tax credit and the small agri-biodiesel producer credit of 10 cents per gallon. The bill also extends through 2011 the $1 per gallon production tax credit for diesel fuel created from biomass.

If it makes it through session-end wrangling, the extension of biofuel tax credits would be good news indeed. Many in the industry have been assuming VEETC would lapse, as did biodiesel tax credit a year ago. Of course, there have been times this year when ethanol would have held its own without the credit, being competitively priced with gasoline. The RFS itself would prop up demand to a certain degree. The price for biodiesel RINs has been high all year long, essentially making up the loss of the biodiesel tax credit, but with limited effect. The biodiesel lapse devastated the industry with widespread idled capacity.

It's looking like the biofuels tax credits are going to face a tough fight, with many calling for their elimination. Even within the biofuel industry, there is talk of reforming the programs. We are also seeing some visibility given to the complaint that the oil industry has many tax breaks written into permanent law. Perhaps there will be some traction to the argument that if biofuels don't deserve subsidies through the tax code, neither should oil.

The real question, though, is whether the gridlock in Congress can be cracked and some work done on turning around a dysfunctional Congress.