U.S. senators will introduce legislation as soon as today that seeks to modify subsidies for the ethanol industry, instead of slashing them as severely as another measure previously proposed by other senators, Reuters reported.

The new bill, to be introduced by Iowa Sen. Charles Grassley and other farm-state lawmakers from the Midwest, would extend the tax credit for ethanol makers for two years, which along with a tariff on imported ethanol is set to expire at the end of the year.
But the measure would reduce the current tax credit of 45 cents per gallon, which is estimated to cost $6 billion a year. The credit is increasingly unpopular in a Congress looking to cut costs.

In 2012 the credit would fall to 20 cents per gallon, and in 2013 it would slip to 15 cents per gallon, according to a copy of draft legislation obtained by Reuters. After 2013 the credit would be linked to the price of oil.

The variable rate starts at 30 cents a gallon if the price of crude traded in New York is less than $50 a barrel. It drops 6 cents when crude is over $50 a barrel, then drops another 6 cents for any $10 rise beyond $50. At $90 a barrel, the incentive is wiped out.

“We think it’s a smart policy that allows the industry to evolve while it addresses the budget concerns of some on Capitol Hill,” said Matt Hartwig, a spokesman for the Renewable Fuels Association, an industry group. “The variable credit provides the ethanol market stability against the volatility of oil markets.”

The Grassley bill would also provide incentives to help the ethanol industry transform with new infrastructure to get biofuels to market. “Blender” pumps, which allow customers to choose the blend of ethanol they want in their cars, would benefit.

Grassley’s office would not say when the bill would be introduced.

On Tuesday, a bipartisan group of seven senators led by Dianne Feinstein and Tom Coburn, introduced a bill to immediately end the subsidies and the tariff on imports, saying the government can no longer afford to pay the benefits.