NBB conference addresses biodiesel public policy

By Erin Voegele | February 07, 2011

Attendees at the National Biodiesel Conference & Expo in Phoenix had the opportunity to gain insight into the primary policy issues facing the industry during a panel discussion titled Federal Policy Outlook. The session included information on tax policy, Farm Bill programs and implementation of the renewable fuel standard (RFS2) program.

Manning Feraci, the National Biodiesel Board’s vice president of federal affairs, opened the session by providing attendees with a general overview of federal tax policy and an explanation of the pay-as-you-go (PAYGO) budget rule, which essentially requires spending increases to be balanced with corresponding spending cuts or revenue generation.

While 2010 was a particularly painful year for the biodiesel industry due in part to the expiration of the biodiesel tax credit, Feraci said it is important to remember that the biodiesel industry was not the only industry affected by the inability of Congress to pass a tax credit extension package. In fact, a total of 72 tax provisions expired in 2009.

There are several reasons tax incentives are enacted with expiration dates attached to them, Feraci said. “If you have these incentives expire periodically, it gives Congress the ability to periodically take a look at them and say whether this particular provision has merit, or this particular one doesn’t,” he said. “Another way of looking at it is, when you put together a tax bill you are looking at the whole revenue impact. If you have a provision that’s extended for four or five years—or you have a provision that is permanent—it’s going to cost a lot more money than if you just extend it for one or two years.” In other words, the longer the extension, the harder it is to meet the PAYGO budget rule.

Dealing with expiring tax provisions is something that Congress must address periodically, Feraci continued. “It’s not unique to biodiesel,” he said. “There are a whole host of provisions in the internal revenue code that expire periodically.”However, last year, Congress experienced an unusually long delay in dealing with the expiring tax provisions. This can be partly attributed to the PAYGO system, and the fact that Congress was focused on healthcare legislation.

With the blenders credit set to expire once again at the end of the year, the NBB and members of industry are gearing up to lobby for its extension. According to Feraci, there are several specific reforms the NBB is pushing for in the credit’s next extension. 

“We support switching it to a production excise tax credit, so you are pushing it back to the producer level,” Feraci said. In addition, the NBB would like to see biodiesel treated the same as diesel fuel regarding excise tax, and would like the credit to be extended for a full five years.

“I’m under no illusion that any of this is going to be easy, but nothing worth doing ever is,” Feraci said. “But, we do have a story to tell. If you’re looking at economic growth, we create jobs across the country. The bang for the buck that you get out of this tax incentive in terms of return to the treasury versus what goes out, this is impressive.”

The educational session also addressed the energy provisions of the 2008 Farm Bill. Gordley & Associates spokesman Tom Hance spoke to attendees about the Section 9005 Bioenergy Program established by the most recent farm bill. That program, he said, authorized $300 million in mandatory funding over four years. “Payments go to eligible producers of advanced biofuels,” Hance said. Under the bill, advanced biofuels are defined as nearly any biofuel other than corn-based ethanol.

The program got off to a somewhat rocky start, and some revisions had to be made to the program last year. “There were some items in the first notices and in the proposed rule that were unintended and arbitrary decisions by USDA that excluded some biodiesel producers, in particular, that were not intended to be excluded from this program,” Hance said. As a result, a previous Notice of Contract Proposal was cancelled. “We’ve been anticipating that they would issue the notice for the next round of payments and the final rule that would guide the implementation of this program for the duration of the funding they have to distribute, and they were supposed to get [that] out by the end of 2010,” Hance continued. After several delays, indications finally are that the rule and Notice of Contract Proposal will be published Feb. 11.

Rounding out the session discussion, Larry Schafer, spokesman for The Diamond Group, spoke about the RFS2 program. He noted that the National Petrochemical & Refiners Association and American Petroleum Institute are pursuing an appeal of the recent court decision that denied the organizations’ original challenge to the RFS2 program. Three judges issued a unanimous decision denying the original lawsuit, and the NPRA and API are now asking a larger panel of judges to consider the issue. However, Schafer noted that the court is unlikely to agree to hear the repeal.

Schafer also spoke to attendees about the upcoming U.S. EPA rulemaking that could set the stage for the future of the biodiesel industry. While the RFS2 sets a minimum 1 billion gallon requirement for biomass-based diesel in 2013 and beyond, Schafer said that the agency can elect to increase that volume requirement. “At some time this year EPA is going to tell us what they expect will happen in 2013 and beyond,” he said. “The reason why that is important is because it begins to kind of lay the framework for what we call a better long-term outlook for biodiesel moving forward. We’ve all suffered through and worked hard to get through 2010—where instability and uncertainty kind of became the norm. We’re working very hard on trying to make sure that we create certainty moving forward.”

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