Retroactive biodiesel tax credit signed into law for 2017 only

By Ron Kotrba | February 09, 2018

In the early morning hours of Feb. 9, after a brief government shutdown that lasted only hours—the second this year—Congress passed a two-year funding bill that includes a retroactive extension of the $1 per gallon biodiesel blenders tax credit. The important incentive expired Dec. 31, 2016, for the fifth time since its enactment in 2005. The 11th-hour deal, unfortunately, does not include a forward-looking extension of the credit through this year, as so many biodiesel advocates had hoped. Trump signed the funding bill Feb. 9 just hours after its passage through Congress.

“We will continue to work for a quick extension for 2018 and ultimately a commonsense long-term extension,” said Monte Shaw, executive director of the Iowa Renewable Fuels Association. “When you consider that petroleum is in its 105th consecutive year of federal tax preferences, it is ridiculous that U.S. House members objected to the two-year extension. Today, just as yesterday, the industry has to produce and market biodiesel with no certainty over what the final financial situation will be. That is not any way to run a business.”

Randy Howard, president and CEO of Renewable Energy Group Inc., the largest biodiesel production company in North America with 11 U.S.-based plants whose annual capacity nears half-a-billion gallons, said, “This credit will allow needed infrastructure investments to grow the production and distribution of these valuable renewable products. However, we are disappointed that despite strong bipartisan support, Congress did not complete the job and continue the biodiesel tax credit into the future. Though frustrated with the partial outcome, we would like to thank all of our supporters and champions—a large group of members worked tirelessly on our behalf and we appreciate their efforts.” Howard specifically thanked U.S. Sens. Chuck Grassley and Maria Cantwell.

In December, Sen. Orrin Hatch introduced S. 2256, a tax extenders package, in section 307 of which was included a retroactive and forward-looking extension of the biodiesel tax credit.

“The odds of the Hatch bill moving now is low,” said Brian Keuhl, director of federal affairs and principal with the accounting and consulting firm K-Coe Isom. “It doesn’t mean we won’t see another bite at the apple this session, but I wouldn’t look toward the Hatch bill as the vehicle.”

According to one source, plans are in the works to include a biodiesel tax credit extension in the new farm bill, which is anticipated to begin work this year with completion expected in 2019. 

“For 2018, there will not be any credit unless new legislation invokes a retroactive component,” the source said. “Historically, new legislation takes two years to complete. This means the U.S. biodiesel industry will face volatility like never seen before. U.S. RIN prices are up a dime since [news of the retroactive extension began yesterday] and I expect another dime very soon. The last ask price was $0.85 per RIN.”

Howard said REG will continue to work with policymakers on a long-term extension of the tax credit because it is not just smart energy policy, but smart tax policy too, adding that the incentive helps lower RIN costs while boosting economic development, jobs, farmer support and a cleaner environment.  

The retroactive extension means the biodiesel supply chain will see a cash infusion of roughly $2.6 billion, matching the U.S. market for biodiesel last year of 2.6 billion gallons. The funds will be divvied up among blenders and producers, depending on how supply contracts were negotiated. Domestic production in 2017 was roughly 1.8 billion gallons, according to U.S. EPA EMTS data.

Neste, a major exporter of renewable diesel to the U.S., said in a statement that the retroactive reinstatement of the blenders tax credit for 2017 will have a positive impact on its comparable operating profit in the first quarter of 2018, although it is estimated to be somewhat lower than it was in 2016.

For years, the National Biodiesel Board and political champions like Sen. Grassley have been pushing to reform the biodiesel blenders tax credit—which allows foreign biodiesel and renewable diesel to qualify for the credit—to a domestic producers credit. The movement never materialized in approved legislation, despite nearly 450 million gallons of Argentine biodiesel entering the U.S. in 2016 that, once blended in the U.S., qualified for the incentive.

Last year, antidumping and antisubsidy cases were initiated and won by NBB against Argentine and Indonesian biodiesel, which imposed tariffs that quelled imports from these countries. When Biodiesel Magazine asked NBB CEO Donnell Rehagen if it was time to give up the fight to reform the credit, given the stiff duties now imposed on Argentine and Indonesian product, Rehagen said, “I don’t know if it’s the right time to give that up, but it is a different environment now.”


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