Trade groups at odds over US biodiesel tax credit structure

As the legislative year winds down, Congress is expected to take up the tax extenders package soon. The Advanced Biofuels Association (ABFA) has aligned itself with several petroleum marketing groups in taking a stance against restructuring the $1 per gallon biodiesel and renewable diesel tax credit from a blender to a producer credit, which Sen. Charles Grassley offered in an amendment to the extenders package this July and the senate finance committee approved unanimously. The measure would also extend the tax credit for two years, retroactive from Jan. 1, 2015, through Dec. 31, 2016. If signed into law as is, the incentive would move to a producer tax credit on Jan. 1, 2016.

The ABFA, along with several petroleum and retail marketing groups including the Petroleum Marketers Association of America, the National Association of Convenience Stores, the National Association of Truck Stop Operators and the Society of Independent Gasoline Marketers of America sent a letter to the House Ways and Means Committee Chairman Paul Ryan and Ranking Member Sander Levin Oct. 21, urging them to keep the incentive as a blender credit.

“Converting the tax credit to a producer tax credit and limiting its availability fails to capture the global market essence of fuels,” stated the ABFA. “It increases profits for a limited number of producers while reducing the overall availability of fuels. Any limits in the supply chain are likely to increase costs for consumers. This amendment also places an unnecessary burden on fuel retailers who have incurred significant costs to purchase and maintain the equipment to dispense blended fuels, another cost likely to be passed on to consumers.”

The National Biodiesel Board’s position, on the other hand, strongly favors restructuring the now-expired blender credit to a producer credit, which it says is in the best interests of the U.S. biodiesel industry, American tax payers and consumers.

“This is a common-sense reform that will not only simplify the tax code for biodiesel but will also save taxpayer dollars by changing the structure of the tax credit so that it supports only domestic production,” said Anne Steckel, vice president of federal affairs for NBB. “We think most members of Congress would agree that American tax dollars should be used to stimulate U.S. manufacturing and should not be going to support foreign production that is simply blended in the U.S. There is more than enough domestic production capacity in place today to meet U.S. market demand.”

President of the ABFA, Michael McAdams, said, “The current blenders’ credit for biofuels creates a competitive market for biodiesel and renewable diesel, which benefits the American consumer. Continuing and extending the original policy allows truckers and consumers to share in the value, it encourages consumer acceptance, and it benefits blenders and those who provide the feedstocks that make these cleaner, better fuels. This amendment destroys these positives, by siphoning the benefits to a small group of producers and punishing everyone else along the supply chain, including consumers. ABFA and its partners believe the current blenders’ credit should be extended in its longstanding form as originally intended.”

Under its current structure as a blender credit, biodiesel producers and blenders already share the value of the tax credit as biodiesel and renewable diesel move downstream. The NBB’s position is that moving the credit upstream would not change this. Under the new structure, the organization says producers and blenders would continue to negotiate transactions in which the value of the credit is shared throughout the distribution chain, ultimately lowering costs to the consumer.

ABFA also says there is significant concern that the restructuring will limit the supply of biofuel heating oil into the Northeast this winter. “This change, in combination with the poorly designed excise tax system, could lead to consumers paying as much as an additional 24 cents per gallon for their biofuel heating oil this winter,” the organization stated.

NBB refutes this, saying there would not be any new tax burden on biodiesel used in heating oil resulting from restructuring the tax credit. Biodiesel used for off-road purposes such as Bioheat would continue to be exempt from the 24-cent federal excise tax.

Furthermore, the NBB added that the Congressional Budget Office figures restructuring the incentive from a blender to a producer credit would save $90 million, perhaps from reduced volumes of subsidized imports that wouldn’t be replaced with domestic production.