The US renewable energy and biofuel industries were celebrating yesterday after the Senate overwhelming approved plans to extend crucial green tax breaks and grant programmes.

Senators voted 81 to 19 in favour of the controversial bipartisan tax bill, which extends the Bush-era tax cuts supported by Republicans, but in return extends federal unemployment benefits for 13 months and provides many incentives to clean energy projects.

In particular, the package includes extensions to the existing research and development tax credit, ethanol tax credit, biodiesel and renewable diesel tax credit, and energy efficient homes tax credit.

Significantly, it also extends by one year the Treasury’s popular Section 1603 programme, which offers large-scale renewable energy projects an upfront cash grant to help cover construction costs in lieu of a 30 per cent tax break.

Rhone Resch, president and chief executive of the Solar Energy Industries Association, said the compromise deal would provide a major boost to the renewable energy sector.

“Since its passage, the 1603 programme has successfully created jobs and opportunity in all 50 states for construction workers, electricians, plumbers, contractors that have struggled during this difficult economic climate,” he said in a statement. “An extension will help the solar industry remain one of the fastest-growing industries in America and create thousands of new careers.”

The Senate also rejected a last-ditch attempt by a handful of senators to scale back biofuel incentives that some critics claim are over-generous and have failed to deliver deep cuts in greenhouse gas emissions. Instead, senators approved extensions of the ethanol tax credit and import tariff at the current levels of 45 cents (29p) a gallon and 54 cents a gallon respectively.

In addition, the bill extends for one year the 10-cent-a-gallon small-producer ethanol credit and reintroduces a $1-a-gallon biodiesel tax credit that lapsed at the end of last year.

Bob Dinneen, chief executive and president of the US Renewable Fuels Association, defended the extension of the incentives, insisting they were necessary to drive the development of more sustainable, second-generation biofuels and help the sector compete with fossil fuel firms.

“These incentives… allow domestic ethanol producers to compete with well-heeled and heavily subsidised providers of oil,” he said. “Extending [the tax breaks] would provide the breathing room necessary to fully vet all the ideas on responsible reform of ethanol tax policy, including ideas on how to accelerate commercialisation of advanced and cellulosic ethanol technologies. It also would allow for a thorough conversation on all energy subsidies, including those for fossil fuels.”

The bill will now be voted on in the House of Representatives where many Democrats remain furious at president Obama’s willingness to bow to Republican demands for an extension to tax cuts for the wealthiest families and pass a bill that will add to the deficit.

Resch and Dineen both urged House Represenatives to put aside political differences and approve the bill. “With passage now complete in the Senate, it is critical that the House moves swiftly to pass this bill and send it to the president for his signature,” said Resch. “Tens of thousands of jobs depend on it.”