Washington (Platts)--2Aug2011/521 pm EDT/2121 GMT

A bipartisan deal to end a US tax credit for ethanol blending has collapsed because the provisions of the agreement were not included in legislation, which passed Congress Tuesday, to raise the nation's debt ceiling.

Senator Dianne Feinstein, Democrat-California, one of a trio of senators that backed a plan to end the ethanol blender's credit six months early, said the efforts to repeal the Volumetric Ethanol Excise Tax credit "have reached an impasse."

"The debt agreement excludes all immediate revenue raisers and there are simply no other tax vehicles to which we can attach a repeal," Feinstein said in a statement. "This is a shame, as we lose the chance to save taxpayers $1.33 billion. There is some consolation that this wasteful subsidy will expire at the end of the year, but I'm disappointed the bipartisan agreement to repeal wasn't included in the final debt agreement."

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Feinstein's allies in the deal, Senator John Thune, Republican-South Dakota, and Amy Klobuchar, Democrat-Minnesota, had previously said that if the deal to end the VEETC was not agreed to before Congress adjourned for its August recess, they would withdraw their support.

"If Congress fails to enact this proposal before it adjourns for August recess, the substantial levels of deficit reduction and investment achieved by this compromise will no longer be possible, and we cannot commit our support after that point," Klobuchar, Thune and Feinstein said on July 7.

Klobuchar and Thune could not be reached for comment on Tuesday.

The senators had agreed on a plan to end the 45 cents/gal ethanol blender's tax credit and the 54 cents/gal tariff on imported ethanol July 31 -- six months before they are set to expire.

The deal was estimated to save about $2 billion. About two-thirds of that amount, or $1.3 billion, would have been used to reduce the national deficit. The remainder would have gone to extending tax credits for cellulosic biofuel production and to help pay for blender pumps and other ethanol infrastructure.

The VEETC and the corresponding import tariff are scheduled to end December 31.

Ethanol trade groups said they were disappointed that the deal was not part of the plan to raise the nation's debt ceiling. But some expressed hope that parts of the deal could still be revived before year's end.

"We don't want to throw in the towel yet," Stephanie Dreyer, a spokesman for ethanol backers Growth Energy, said.

Dreyer said her group would push for the plan, in some form, to be considered as part of another pending bill to extend funding for the Federal Aviation Administration, or as part of the work that will be done by the 12-member Congressional committee formed to recommend further budget cuts in November.

"We're going to continue to advocate for this compromise in whatever legislative vehicle we can," Dreyer said.

The Renewable Fuels Association expressed similar hopes that some agreement on support for biofuels in some form can be reached this year.

"As this deal calls for a commission and a future budget framework, the possibility still exists for a more comprehensive dialogue about energy tax policy, including how to assure the continued evolution of the ethanol industry to new feedstocks and technologies, how to assure needed investments in vehicles and infrastructure to accommodate higher ethanol blends, and how to end the billions in subsidies and tax preferences still enjoyed by very mature and profitable petroleum fuels," RFA President and CEO Bob Dinneen said in a statement.

--Gary Gentile, gary_gentile@platts.com