The ethanol tax credit known as VEETC would be extended at reduced levels for two more years before transitioning to a tax credit adjusted to oil prices under a bill introduced in the United States Senate Wednesday, May 4.

Senators Chuck Grassley of Iowa and Kent Conrad of North Dakota introduced the Domestic Energy Promotion Act of 2011.
It would extend the volumetric ethanol excise tax credit, or VEETC through 2016 at descending levels. It also would extend, through 2016, the alternative fuel refueling property credit, cellulosic producers’ tax credit and the special depreciation allowance for cellulosic biofuel plant property.

Pro-ethanol groups quickly praised the measure, saying it would help keep gasoline prices down and reduce imports of oil.

“The Domestic Energy Promotion Act of 2011 would ensure we don’t abandon this increasingly vital American industry, but rather smartly and responsibly foster its continued growth ane evolution,” the Renewable Fuels Association said in a prepared statmeent.

Conrad pointed out that the nation is spending more than $850 million daily on imported energy, and Grassley said Congress needs to keep energy security on the “front burner.” They emphasized the bill would help create American jobs and reduce dependence on imported oil.

“The debate over energy tax policy should be comprehensive and include all sources of energy. With this bill, ethanol has taken the lead in looking forward. No other energy sector has stepped up to do that in the current legislative debate,” Grassley said.

A draft of the bill released by Grassley’s office to the Oil Price Information Service indicates it would provide a fixed VEETC for ethanol for two years, after which it becomes a variable rate tied to petroleum prices for three years, and then terminates. For 2012, the rate is 20 cents per gallon. The variable rate starts at 30 cents per gallon and decines by 6 cents for every $10 per barrel over $50 per barrel in oil prices.

Other sections of the bill extend the $1.01 per gallon cellulosic ethanol tax credit, set to expire at the end of 2012, through Dec. 31, 2016, and extend the alternative fuel vehicle refueling property credit through Dec. 31, 2016.