Biodiesel industry wants federal tax credit back
By Heather Thorstensen
Agri News
Date Modified: 02/04/2010 9:18 AM
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WASHINGTON — A federal biodiesel tax credit expired at the end of 2009, causing major concern in the industry about production and jobs.
"Without the tax credit, production can come to a halt," said Kevin Paap, Minnesota Farm Bureau president.
The credit expired Dec. 31. The U.S. House passed a bill that would extend a package of tax provisions that included the credit. The Senate's version wasn't passed in time with other issues, namely health care, taking center stage.
The tax credit's purpose was to make biodiesel price competitive with traditional diesel. The credit was given to the first blender who mixed the two fuels.
Randy Olson, executive director of the Iowa Biodiesel Board, said typically the first blender mixes 100 percent biodiesel, known as B100, with a tenth of a percent of traditional diesel to make B99.9. Blenders received a tax credit of $1 per gallon.
"It's a support of a dollar in order to help biodiesel compete with a legacy of subsidies in the petroleum industry," he said. "...Commercially, you'll see a price sheet that indicates B100 pricing or B99.9 pricing and they would most likely be approximately a dollar different."
From B99.9, the fuel continues to be blended until it reaches consumer levels, such as B5.
Ed Hegland, chairman of the National Biodiesel Board's governing board, said the tax credit helped the industry grow from making 25 million gallons in 2004 to nearly 700 million gallons in 2008.
"We see the results of the tax incentive and we see that it works," said the crop farmer from Appleton, Minn.
This is the first time Congress has allowed it to expire. It was enacted in 2004.
Industry leaders expect the credit to return, but they don't know how long they will have to wait. It's hoped it will be brought back retroactively to pick up where it left off Jan. 1, but that's not guaranteed.
Sen. Chuck Grassley of Iowa, a ranking member on the Senate Finance Committee, has said he wants to make the credit a priority and thinks it could be passed in February or March.
The sooner the credit is back, the better. Production at biodiesel plants across the country is down to nearly zero percent and jobs are being affected, said Michael Frohlich, director of federal communication for the National Biodiesel Board. The tax credit is needed to get large scale production back so the nation can continue reducing it's dependence on foreign oil and reap environmental benefits, he said.
Grassley helped introduce a Senate bill, and there's one in the House, that would make the credit last five years, instead of just one. The multi-year extension is needed to provide stability, said industry members. The bills would also change the provision from being a blender credit to a producer credit to simplify the process for the Internal Revenue Service and ensure the credit only goes to U.S. biodiesel producers.
For now, the biodiesel industry says the first priority is to get the credit back.