The biodiesel tax credit that lapsed on the last day of 2009 will likely be restored, trade group representatives said, but just when that will happen remains uncertain.
Partisan politics in Congress is holding up passage of all sorts of legislation, they said, including bills such as the biodiesel tax credit that have bipartisan support and are not viewed as especially controversial.
Representatives of the New England Fuel Institute (NEFI), the Petroleum Marketers Association of America (PMAA) and the National Biodiesel Board (NBB) said they anticipate that Congress will reauthorize the biodiesel tax credit for one year.
The House of Representatives in December passed H.R. 4213, which includes a one-year extension of the one-dollar per gallon tax credit for blenders of biodiesel. But the Senate has not passed an extension “because of political polarization of the chamber,” Jim Collura, NEFI’s vice president of government affairs, said. “They won’t agree on anything,” Collura said of Democrats and Republicans. The victory of Republican Scott Brown, who was elected Jan. 19 to fill the Senate seat from Massachusetts that had long been held by Edward M. Kennedy, means Democrats no longer have a 60-vote caucus, and that is expected to intensify the general level of contention.
Nevertheless, Collura, Dan Gilligan, president of PMAA, and Michael Frohlich, director of federal communications for the NBB, all said they believed Congress would re-authorize the biodiesel tax credit sooner rather than later, and possibly in February. “I still think there’s bipartisan support for extending the credit,” Gilligan said. Congressional rules require unanimous consent for the extension of an existing bill, Gilligan pointed out.
The NBB and NEFI have drafted a letter that supporters of the tax credit may send to their senators. It can be viewed at the Web site nefiactioncenter.com. (Go to the box titled “Government Affairs,” and click on “One year extension for federal biodiesel tax credit.”) Senders may modify the letter to provide information on how the tax credit benefits them, specifically.
Collura said supporters should tell their senators “to expedite the process for one-year extension and to make it retroactive.”
“It has been signaled as a priority, so we’re fairly confident that they will reinstate the tax incentive,” Michael Frohlich, director of federal communications for the NBB, said. Sen. Charles Grassley (R-Iowa), the ranking member on the Senate Finance Committee, and Sen. Max Baucus (D-Mont.) the committee chairman, had a conference on the Senate floor that specifically mentioned the biodiesel tax credit and the importance of reinstating it as soon as possible, Frohlich said.
“What we have right now is an industry that isn’t producing any fuel,” Frohlich said. “It’s in a holding pattern, waiting for the tax credit to be reinstated.” Asked in mid-January whether plants in the U.S. were shut down, Frohlich said, “They’re idling. They’re open, but they’re not producing any fuel.” Some larger plants may have contracts for which they were committed to produce fuel before the end of 2009, and which they may still be selling and distributing, Frohlich said, “but hours are being cut, payroll’s being cut.”
A one-year extension would also give Congress time to draft a longer-term extension for the tax credit, which would encourage investment and the long-term viability of biodiesel, the trade groups said.
Sen. Maria Cantwell (D-Wash.), has introduced a bill that would, among other things, extend the bill for five years. A similar bill has been introduced in the House by Rep. Earl Pomeroy (D-N.D.).
But there are some points of the Cantwell and Pomeroy proposals that require scrutiny, Collura said. For instance, the proposed legislation would shift the tax credit from blenders to producers and make imported biodiesel ineligible for the credit, Collura noted.
The bill introduced by Cantwell also would increase the tax credit for small producers to $1.10, which would serve as an incentive to investment, “especially in the Northeast where smaller producers are the norm,” Collura observed.
The NBB and the PMAA, meanwhile, don’t have identical views on every aspect of the Cantwell and Pomeroy bills.
About the proposal to shift the tax credit to producers, PMAA’s Gilligan said, “We’re opposed to that because our members are blenders. And every now and then, depending on the price of biodiesel, there’s opportunity to make a little money.” (The NBB, representing producers, supports moving the credit to producers.)
The Petroleum Marketers also oppose the idea of granting the tax credit only to U.S.-produced biodiesel while setting no restrictions on its export – both elements of the Cantwell bill. Under those conditions, Gilligan said, “U.S.-produced biodiesel will wind up in Europe with a dollar per gallon credit while our citizens might not see any of it. We have the reverse thinking.” The tax credit should be allowed on imports and U.S.-produced fuel, while also ensuring that “it stays in the United States so our consumers, customers, benefit from the dollar a gallon,” Gilligan said.
The Cantwell and Pomeroy bills assume that producers, given the tax credit, would pass it along to blenders. But a PMAA in-house analysis pointed out, “It is unlikely that producers will always pass along the full value of the tax credit,” and in such cases, “Blenders will lose the occasional profit opportunities that arise when prices fall.”
The PMAA noted, “limiting foreign biodiesel feedstocks would have unintended consequences for the biodiesel marketplace. The legislation would leave marketers with fewer choices because biodiesel imports could not compete. Producers will be free to export subsidized biodiesel. We think subsidized biodiesel should benefit U.S. consumers and not be exported.”
The Petroleum Marketers detailed yet another concern: “Marketers would be required to have two tanks to pick up dyed and undyed product from the producer. Not only will marketers be required to have two tanks, but marketers in colder states would have to install heated tanks,” which cost, at minimum, $25,000 per heated tank. Some estimates exceed $60,000 for some jobbers who install a 30,000-gallon tank, the PMAA analysis noted.
Going from year to year without the certainty of the tax credit is a hardship, the trade groups said.
“The biodiesel producers, the people in the business – they need more certainty,” Gilligan said. “It’s hard to build a business, it’s hard to build infrastructure,” under present conditions, he said. “To build a biodiesel plant you need some certainty that the tax credit’s going to be there to keep the market moving. Without that dollar biodiesel is very pricey.”