12/02/2009
Next week, the House is set
to consider legislation to extend some expiring renewable fuel
incentive programs, including the biodiesel tax credit and the small
agri-biodiesel credit that are scheduled to expire on Dec. 31.
As
part of the American Jobs Creation Act enacted in 2004, Congress passed
legislation that established the first-ever biodiesel tax credit. The
tax credit provides biodiesel producers and blenders a $1.00-per-gallon
tax credit for “agri-biodiesel” produced from agricultural products,
such as soybeans, and a 50-cent-per-gallon tax credit for biodiesel
produced from recycled products, such as fryer grease. Then in 2005,
legislation was passed that extended the biodiesel tax credit and
established an additional tax incentive for small biodiesel producers
as part of the Energy Policy Act. This tax credit provides an
additional 10-cent-per-gallon tax credit to small “agri-biodiesel”
producers with production capacity below 60 million gallons per year.
In
the past, Congress has retroactively extended certain tax credits after
their expiration. However, one of the industry's major congressional
supporters, Sen. Chuck Grassley (R-Iowa) said it is very important that Congress not wait to extend the biodiesel tax credit. "The
biodiesel blender’s tax credit is applied against the excise tax paid
by retail sellers. This means that if the biodiesel tax credit is
allowed to expire, the price of biodiesel immediately will be
significantly higher than petroleum diesel," Grassley said. "This
instantly would put biodiesel at a competitive disadvantage to
petroleum-based diesel, resulting in a reduction in the demand and
production of biodiesel. So Congress should not wait to take action to
extend the biodiesel tax credits.”
The
National Biodiesel Board, in a statement calling for the extension,
said: “Absent the biodiesel tax incentive, the use of biodiesel in the
marketplace will be cost prohibitive, and the domestic production and
use of biodiesel will cease.” According to the National Biodiesel Board, 690 million gallons of biodiesel were produced in the US in 2008, displacing 38.1 million barrels of petroleum.
In the Senate, Grassley last summer introduced
the Biodiesel Tax Incentive Reform and Extension Act with Sen. Maria
Cantwell (D-Wash.). The bill would extend the biodiesel tax credit for
five years, which Grassley said would give the industry the tax
certainty needed to expand production capacity and invest in the
infrastructure necessary to continue working to displace petroleum
diesel fuel with renewable, low-carbon biodiesel. The bill also
simplifies the tax credit and eliminates potential abuses of the credit. In the House, legislation has been introduced that would extend the incentive for five years but that legislation changes the way the program is administered.
Congress also has been discussing tax extender
legislation that would extend tax provisions set to expire at the end
of the year, including the biodiesel tax credit. But Grassley said that
unfortunately, consideration of tax extenders legislation continues to
be pushed back by congressional leaders. It has been widely reported
that the Senate leaders plan to combine the non-controversial tax
extenders legislation with other more controversial tax legislation.
Grassley said he opposes this approach because it could create a
legislative deadlock. Instead, he said, tax extenders legislation
should be taken up separately and passed before year’s end “to prevent
the US biodiesel market from coming to a grinding halt on Jan. 1, 2010.”
Congress
previously passed legislation to require the blending of 500 million
gallons of biodiesel into the nation’s fuel supply in 2009, and
doubling to 1 billion by 2012. The mandate is part of a law that
requires usage of 36 billion gallons of renewable fuels, mostly
ethanol, by 2022. But the EPA has not yet approved rules to put the
biodiesel requirement into practice.