NBB In Sight

Never underestimate the power of policy
By Joe Jobe | April 06, 2007
Over the past several weeks, Congress has begun focusing more attention on energy-related issues. The Energy, Agriculture and Tax committees are beginning to hold hearings in this arena. The National Biodiesel Board (NBB) expects to take part in some of these hearings, so this month, I would like to spend some time focusing on the industry's priority agenda before the House and Senate tax writing committees.

As we have clearly seen, tax policy can have a significantly positive impact on our industry for the benefit of the entire nation. Tax policy can also have a significantly negative impact on the future of our industry. The House Ways and Means, and Senate Finance, committees have jurisdiction over many of the most critical issues likely to be considered this year that will shape our industry for years to come. The NBB is actively engaged in the industry's tax agenda through communication with these important committees. We need to ensure that legislation doesn't carry within it harmful provisions that could look positive on the outside, but actually harm biodiesel.

The extension of the volumetric biodiesel tax credit-the blender's credit-is at the top of the list of issues we are working to get completed this year. Achieving our tax credit extension will take an enormous amount of work by the NBB, along with our members and stakeholders. The bad news is that most of our industry assumes that an extension of the tax credit is a forgone conclusion. A survey taken of our membership prior to the 2007 biodiesel conference indicated that 99 percent of our members believed that the tax credit would be extended this year. The good news is that we have good political conditions and a great story to tell.

We can affirmatively demonstrate all of the benefits of the biodiesel tax credit. Since the passage of the tax credit, approximately 75 plants have come online, increasing production from approximately 25 million gallons in 2004 to approximately 225 million gallons in 2006. There are 85 plants currently under construction throughout the country. The tax credit has indeed enhanced energy security by adding refinery capacity and fuel to our nation's energy supply. It has also benefited American farmers and the economy.

Continuing this credit for an extended period beyond its current sunset is good public policy and an excellent investment by the federal government. This credit will ensure a vibrant biodiesel industry that will contribute significantly to our nation's energy security, environmental stewardship, public health and economy. The additional tax revenues generated by a profitable biodiesel industry will be significantly larger than the value of the federal tax incentives provided to the industry. Assuming that the biodiesel tax credit is extended past 2008, this program would cost $3.5 billion by 2015. However, the industry will generate $8.3 billion of new revenue for the federal treasury for a positive net balance of $4.8 billion. This doesn't assume the savings generated by the reduction in farm payment programs.

While biodiesel has made tremendous progress in recent years because of the tax incentive, the biodiesel industry is still in its infancy. It is where the ethanol industry was in 1982. The ethanol industry didn't achieve the success that it has today in just two short years. It takes decades for an energy industry to achieve a level of maturity and sustainability within a broader, highly unstable energy market. However, complicating our extension efforts is the ongoing effort by those seeking a broad interpretation from the Department of Treasury and Section 1346 of the Energy Policy Act of 2005 (EPAct 2005). As passed, this provision of EPAct 2005 was inexplicably intertwined with the biodiesel tax credit. A broad interpretation of the Section 1346 provision threatens our ability to secure a long-term extension of the biodiesel tax credit as it would very likely balloon the score, or cost, of the credit.
Further, a broad interpretation of the EPAct 2005 provision would have an unintended consequence from its original objective by providing a tax credit to entities that already have infrastructure in place. These entities would additionally threaten the sustainability of the biodiesel industry, as they will compete against our producers for the raw materials necessary to produce biodiesel.

Please join us in staying alert to the interpretation of eligibility for the blender's credit. One action could be to contact your representatives and senators to warn them of what a broad interpretation of this policy could mean. Members of Congress can, in turn, contact the chairs of the Ways and Means, and Finance, committees and ask them to work with the Energy, Ag and Tax committees, and the Department of Treasury to ensure a narrow interpretation of the provision.

The biodiesel tax credit has proven to be effective in stimulating investment and rural development, benefiting domestic agriculture and job creation, and adding refining capacity to the nation's energy supply. It is imperative that this tax credit be extended in the 110th Congress, or the terrific momentum and success that has been achieved to date will be dealt a substantial setback both for the industry and the country, as a whole.
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