Talking Point

Biodiesel provisions of the energy bill-Cliffs Notes style
By Mark Palmer | October 01, 2005
On July 28, the U.S. House of Representatives passed the Energy Policy Act of 2005 (H.R. 6, 275-156) with the U.S. Senate passing the measure July 29, by a margin of 74-26. President George W. Bush signed the legislation into law Aug. 8 in New Mexico. Thanks to key biodiesel champions like Senate Finance Committee Chairman Chuck Grassley, R-Iowa, Senators Blanche Lincoln, D-Ark., and Jim Talent, R-Mo., and Representatives Kenny Hulshof, R-Mo., and Earl Pomeroy, D-N.D., biodiesel is nicely positioned with more surety and market certainty for vast market expansion. In other words, biodiesel is here to stay.

This legislation includes sweeping changes for the renewable fuels industry and most importantly for biodiesel. The energy bill conference agreement establishes the following:
-Extends federal biodiesel excise (VEETC) tax credit: The energy bill conference agreement extends the excise tax provisions and income tax credit for agri-biodiesel and biodiesel. The conference agreement extends the income tax credit, excise tax credit and payment provisions through Dec. 31, 2008. The JOBS Creation Act of 2004, H.R. 4520, established the credit last year.
-Creates a new Small Agri-biodiesel Producer Credit: The energy bill conference agreement creates a new small agri-biodiesel producer credit of 10 cents per gallon for up to 15 million gallons of agri-biodiesel made by producers with annual capacity not exceeding 60 mmgy. It's effective for taxable years after the date of enactment and sunsets Dec. 31, 2008.
-Modifies the Small Ethanol Producer Credit to 60 mmgy: The energy bill conference agreement modifies and enhances the Small Ethanol Producer Credit, increasing capacity for small ethanol producers from 30 mmgy to 60 mmgy.
-Creates incentives for alternative fuels refueling stations: The energy bill conference agreement establishes a credit for installing alternative fuel refueling property. The provision permits taxpayers to claim a 30 percent credit for the cost of installing clean-fuel vehicle refueling property to be used in a trade or business of the taxpayer, or installed at the principal residence of the taxpayer. Under the provision, clean fuels are any fuel that is at least 85 percent ethanol, natural gas, compressed natural gas, liquefied natural gas liquefied petroleum gas, or hydrogen, and any mixture of diesel fuel containing at least 20 percent biodiesel. The provision is effective for property placed in service after Dec. 31, 2005 and before Jan. 1, 2010. Separately, code section 179A (the current deduction) is repealed after Dec. 31, 2005.
In the authorizing provisions of the energy bill conference agreement, Title XV of H.R. 6 includes a national renewable fuels standard (RFS) slated for 7.5 billion gallons of biodiesel and ethanol by 2012, beginning with 4 billion gallons in 2006. The House bill was 5 billion gallons by 2012; the Senate was 8 billion gallons by 2012. The RFS has embraced a 12-month credit-trading program and the Senate waiver language. The advanced schedule (in billions of gallons) follows:
Moving these pieces, particularly the RFS, through the regulatory process will be the next big challenge for the biodiesel industry. The RFS, and the regulations later promulgated for this program by the U.S. EPA, should generate an appropriate amount of credit for the treatment of biodiesel. The legislation gives deference to the EPA to define the credit treatment for biodiesel. In the regulatory process, the biodiesel industry will look for fair and equitable treatment, making biodiesel a vital commodity in the RFS.

The RFS is a first for the biodiesel industry, and coupled with the extension of the tax incentive through 2008, along with the aforementioned issues, the biodiesel industry is on its way to healthy expansion and growth.

Mark Palmer is a Washington, D.C., representative of the American Soybean Association. Reach him by e-mail at [email protected]
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