Biodiesel Tax Incentive Pending Before Congress

By | August 08, 2008
In January 2007, at the beginning of the 110th Congress, the National Biodiesel Board's membership identified three key legislative priorities. The reauthorization of the Commodity Credit Corp. Bioenergy Program and the expansion of the renewable fuels standard to accommodate biodiesel have been accomplished. The third priority, extension of the biodiesel tax incentive, remains the biodiesel industry's top priority, and we are hopeful that an extension of the incentive will be enacted before Congress adjourns for the year.

The most compelling case for extending the biodiesel tax incentive is that the credit is working. When it was enacted in 2004, the U.S. biodiesel industry produced 25 million gallons of fuel. That number rose to 500 million gallons in 2007. Last year, the U.S. biodiesel industry displaced 20 million barrels of petroleum, added more than $4 billion to the U.S. economy and supported more than 21,000 jobs across the country. Our contribution to reducing greenhouse gas emissions was equal to removing 700,000 passenger vehicles from America's roadways. To continue reaping these positive benefits, it is imperative that the incentive be extended.

The good news is that the U.S. House has approved legislation that would extend the biodiesel tax incentive. Prior to Memorial Day, the U.S. House passed legislation that among other things would extend the incentive for one year, provide $1 per gallon for all biodiesel regardless of feedstock used to produce the fuel, properly define the tax treatment of co-processed renewable diesel, and close the splash-and-dash loophole.

Extension of the biodiesel tax incentive is being considered as part of what is commonly referred to as a tax extenders package. More than 60 tax incentives in the tax code either expired in 2007 or are set to expire in 2008. These expiring provisions range from renewable energy incentives to the Research and Development tax credit. In general, these incentives, including the biodiesel credit, are extended for short periods to reduce the costs attributed to various incentives in the tax code, and Congress has periodically extended these expiring provisions. For example, the last broad-based extender package was enacted in December of 2006 in a "lame duck" session of Congress.

Unfortunately, the U.S. Senate was unable to approve the latest version of the extenders package prior to the August recess, so Congress will be faced with this issue when it reconvenes in the second week in September. In July, prior to the August recess, procedural disputes relating to the consideration of energy speculation and offshore oil exploration proposals spilled over to impact consideration of the extenders package. In addition, controversy remained surrounding the application of PAYGO, (pay-as-you-go) rules to the package. The Democratic majority in Congress believes it is appropriate to offset the revenue loss associated with the tax extender package with corresponding tax law changes that raise revenue. Republicans consider these revenue raisers unacceptable, permanent tax increases that are being used to pay for temporary tax incentives. Though senior members of both parties have signaled a desire to pass the extender package, these PAYGO and procedural issues will have to be resolved before an extender package carrying the biodiesel tax incentive can be passed by Congress and sent to the president for signing.

Manning Feraci
Vice President of Governmental Affairs
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