Industry Pins Hopes on Policy

In 2007, the biodiesel industry identified policy as the key to industry longevity. After months of lobbying and still no resolution from Congress on the Energy Bill and the Farm Bill, the industry will likely need to maintain its focus on policy.
By Anduin Kirkbride McElroy | November 20, 2007
Early in the year, the National Biodiesel Board determined that the most pressing issue for the industry in 2007 was public policy. More than quality, distribution or new markets, the NBB believed policy was the issue that would most impact the vitality of the industry. Indeed, 2007 was a big year for policy, with the Farm Bill and Energy Bill being worked and reworked the entire year.

With the prospect of these landmark bills ahead, the NBB chose government policy as its theme for the National Biodiesel Conference in February. "The reason we chose government policy as the theme is because clearly we are a policy-driven industry," NBB Chief Executive Officer Joe Jobe said in his opening remarks. "This next session of Congress and the government policy objectives we achieve or fail to achieve will set the course for this industry for the next quarter century-both on the federal level and on the state level."

The focus on policy was, in some ways, a result of the successes seen in the ethanol industry. Jobe pointed to the ethanol industry's roller coaster of boom and bust cycles over the years. "Where it is today is pretty remarkable due in part to the public policy effectiveness of that industry," he said.

Many industry representatives agree with this philosophy. "The U.S. biodiesel industry is at a critical juncture where federal tax and energy policy determines the extent to which it grows or remains a niche, regional fuel industry," Craig Breitbach, director of biodiesel producer Western Dubuque Biodiesel, said in a statement before the U.S. House Small Business Subcommittee on Contracting and Technology. "For a viable U.S. biodiesel industry to thrive, federal policy must provide a framework that is conducive to the growth of the industry." The hearing was held in September to examine small business renewable energy tax incentive possibilities.

To help influence policy challenges the industry has identified, the NBB opened an office in Washington, D.C., last year. This year, it doubled its legislative staff when it hired Manning Feraci as vice president of federal affairs who joined Scott Hughes, director of government affairs. Jobe said it was important to open this office in order to give biodiesel a presence in the nation's capital. "The biodiesel industry has always relied on the American Soybean Association to advocate for biodiesel in Washington," he said. "We've relied on a couple of tried-and-true tools to get the job done-most notably the political clout of American soybean farmers-and the efforts of a few prominent industry leaders. We still need those champions but we have more work to do now so we have to get more of our people engaged in the grassroots effort."

"We have a large, diverse industry with a very broad constituency," Jobe continued. "And that diversity is a strength if we can tap into it. So far we haven't. Let our diversity be our strength, not our weakness in our public policy efforts." With that, he announced the formation of the National Biodiesel Political Action Committee to bring a unified voice to Capitol Hill and promote the industry's public policy priorities. According to the Center for Responsive Politics, a PAC is organized for the purpose of raising and spending money to elect and defeat candidates. Most PACs represent business, labor or ideological interests. After six months of operation, the biodiesel PAC had contributed $6,000 to federal candidates, which was distributed between House Democratic candidates Collin Peterson of Minnesota and Charles Rangel of New York and Senate Democratic candidate Max Baucus of Montana.

Policy Initiatives
At the National Biodiesel Conference, Jobe outlined the NBB's government policy objectives for the next two years. His four-item agenda included an extension of the biodiesel tax credit, focus on the energy title of the Farm Bill, disallowing the tax credit for renewable diesel and an alternative diesel standard. Other industry issues that have since been identified are maintaining the Commodity Credit Corporation Bioenergy Program and an expanded renewable fuels standard with a specific amount carved out for biodiesel.

Jobe identified the extension of the $1 per gallon biodiesel blender's tax incentive as the industry's top priority. The incentive is set to expire on Dec. 31, 2008. Breitbach told the House subcommittee that "enactment of the federal blender's credit by Congress in 2004 has provided a fundamental building block on which the industry has grown." He said the credit has stimulated investment in the industry and, most importantly, allows the fuel to be marketed economically.

Several pieces of legislation were proposed throughout the year to renew the incentive. It saw progress when it was added to the House version of the Energy Bill. House Resolution 3221, the Renewable Energy and Energy Conservation Tax Act of 2007, was passed in August with the addendum of a section that would amend the Internal Revenue Service code of 1986 to provide tax incentives for the production of renewable energy and energy conservation. The provision extends the credit for biodiesel, as well as renewable diesel, until Dec. 31, 2010. This was both a victory and defeat for biodiesel interests. The extension was not permanent, as many had hoped it would be, but it does give the industry more time under the current system. Additionally, the inclusion of renewable diesel within the tax incentive was a blow. Jobe has come down harshly on current renewable diesel policy. "Folks, this is a stark example of why government policy matters," he said at the conference in February. "A few powerful oil and gas interests have been applying enormous political pressure to get a broad interpretation of this credit, so that it could be given to petroleum refiners when they blend a small amount of biomass into their petroleum input stream and run it through their conventional petroleum refinery process. This would amount to an enormous subsidy of existing petroleum refinery capacity. This is just extraordinarily bad policy on so many levels."

A bill introduced in May by Rep. Lloyd Doggett, D-Texas, would have disallowed the credit for renewable diesel in the case of fuel coproduced with petroleum, natural gas or coal feedstocks. However, after being referred to a committee, there was no further action on the bill.

At press time, the tax credit extension for both biodiesel and renewable diesel was not a done deal. The Energy Bill still had not made it to a conference committee. The House and the Senate each passed comprehensive energy bills this summer, but the bills differed dramatically. A major component in the Senate version would expand the RFS to 15 billion gallons by 2015 and 36 billion gallons by 2022. The House version doesn't not include an RFS provision. Efforts to proceed with a conference committee have been thwarted by procedural hurdles. The latest came in the form of a hold that was placed on discussion of the bill by Sen. Kay Bailey Hutchison, R-Texas, who opposed the RFS provision.

If the Energy Bill makes it through the conference committee, President Bush has threatened to veto it. Regarding the RFS, the Bush administration has said it prefers a standard comparable to that proposed by the president in his 2007 State of the Union address. The "20 in 10" proposal called for a reduction of gasoline by 20 percent within 10 years. The proposal included the implementation of an alternative fuels standard of 35 billion gallons by 2017. The alternative fuels standard would include sources such as corn ethanol, cellulosic ethanol, biodiesel, methanol, butanol, hydrogen, and alternative fuels such as coal-to-liquids. As written, the fuel standard in the Senate's Energy Bill remains specific to renewable fuels. It is unclear if this difference would be a factor that would influence a veto, as there are other provisions within the bill more likely to push a veto.

An expanded RFS was a big issue this year in Congress. The aforementioned RFS expansion was included in the Senate Energy Bill, H.R. 6, and is one of the items up for negotiations in the conference committee. Because the conference committee was stalled in October, Sens. Barack Obama, D-Ill., and Tom Harkin, D-Iowa, introduced Senate Bill 2202 to immediately update the current RFS to require the production of 18 billion gallons of renewable fuels by 2016 including 3 billion gallons of advanced biofuels, such as cellulosic ethanol. The legislation would implement the RFS requirements that were included in the Energy Bill passed by the Senate in June. Meanwhile, Sen. Pete Domenici, R-N.M., filed an amendment to the Farm Bill calling for a 36 billion gallon RFS by 2022. At press time, none of the latest RFS proposals had been debated.

If an RFS does pass, it isn't likely to include provisions that require a specific inclusion of biodiesel. The Senate Energy Bill that requires an RFS doesn't change the current practice, in which ethanol makes up the majority of the blended fuel. This is an issue of concern to the biodiesel industry. "In order to ensure a viable domestic market for biodiesel, Congress must enact a biodiesel-specific requirement as part of the RFS," Breitbach said. "Absent a biodiesel RFS, domestic producers will suffer. The Energy Policy Act of 2005 created a renewable fuels standard, which has encouraged the use of renewables in vehicle motor fuel. Although biodiesel qualifies for the RFS, it has not functioned as a stable floor for the diesel pool market." The industry will be nowhere without a domestic market, he said.

Finally, the NBB identified the energy title within the Farm Bill as a top policy priority for 2007. In February, Jobe said the biodiesel industry would seek an extension and modification of the old bioenergy program to include a smaller production incentive on all gallons that will help stimulate domestic production. The other priority was an extension and expansion of the Biodiesel Education Program.

At press time, the Senate had stalled debate on the Farm Bill, or Farm, Nutrition, and Bioenergy Act of 2007, H.R. 2419. As it came out of the Senate committee, the bill contained strong support for biofuels. The bill reauthorizes the Biodiesel Education Program and provides $2 million per year in mandatory funding. The NBB's other request regarding the bioenergy program was also answered. The bill reinstates the CCC Bioenergy Program, which expired in 2006 and provides assistance to biofuels producers for the purchase of feedstocks. According to the bill, "The Secretary is required to base the payment rate on biofuels production, feedstock prices, and net nonrenewable energy content of the fuel. This will benefit those purchasing feedstocks for cellulosic biofuels and biodiesel. The program is not available to those claiming a biofuels production tax credit. $245 million in mandatory funding is provided over the life of the bill." Breitbach said the CCC Bioenergy Program helps producers offset feedstock costs, a policy objective that is timely and relevant given dramatic increases in feedstock prices.

Unfortunately, the issues that were present in February are far from resolved as 2007 comes to a close. It will take continued commitment to foster collaborative solutions within biodiesel policy. "It is all of our responsibilities to come together for our common goals," Jobe said. "Let's come together to embrace the public policy objectives that are needed to take us into the future, and truly help change the way our country uses energy." Jobe's rallying cry at the biodiesel conference in February still holds true in December.

Anduin Kirkbride McElroy is a Biodiesel Magazine staff writer. Reach her at [email protected] or (701) 746-8385.
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