Industry welcomes tax credit extension

By Anna Austin | November 13, 2008
Although it will go down in history as a necessitous rescue of the U.S. financial market, the $700 billion Emergency Economic Stabilization Act of 2008 signed into law by President George W. Bush on Oct. 3 includes significant benefits for the nation's biodiesel industry.

Approved in the U.S. House by a vote of 263 to 171, the final version of the bill extends current biodiesel tax credits through Dec. 31, 2009, and qualifies all biodiesel produced in the United States for a tax credit of $1 per gallon. The original biodiesel tax credit was passed in 2004 and set to expire in 2006 before it was extended to Dec. 31, 2008, as part of the Energy Policy Act of 2005.

One significant change to the biodiesel tax incentive is the complete credit eligibility of producers using nonvirgin feedstocks such as yellow grease. Previously, biodiesel producers using these feedstocks only qualified for a 50-cent-per-gallon tax credit.

Another provision of the law closes what has been coined the "splash-and-dash" loophole. The phrase refers to instances where foreign-produced biodiesel is transported to the United States, blended with a small percentage of diesel to claim the tax incentive, and then shipped to a third country for sale and use. With pressure from the National Biodiesel Board and other renewable energy organizations, the U.S. Congress reevaluated the loophole, and now fuel produced outside the United States no longer qualifies for the biodiesel tax incentive. "We appreciate the congressional action to protect domestic biofuel production," said Alicia Clancy, spokeswoman for Renewable Energy Group Inc., in response to this change. REG is a builder and manager of a network of commercial-scale biodiesel production facilities in the United States.

The act also eliminates the requirement that renewable diesel be produced using a thermal depolymerization process, and reduces the credit for biomass coprocessed with a petroleum feedstock to 50 cents. There was a chance the entire credit was going to be revoked, which Jeffrey Bigger, director of Dynamic Fuels LLC's management committee, was keeping a close eye on. Once the credit was passed, the company broke ground on a 75 MMgy renewable synthetic fuel production facility in Geismar, La., which wouldn't have happened if the credit wouldn't have been extended. "We watched the renewable fuel credit closely, and we were pleased that the credit got extended for next year," he said.

Dynamic Fuels' new facility will use low-grade animal fats and waste vegetable oils as feedstocks procured and supplied by Tyson Foods and Syntroleum Corp. It's expected to be operational in 2010.

Iowa-based REG also kept careful watch over the progression of the tax extension legislation. "[There were] a harried couple weeks where it looked possible the blender's credit would not be renewed before January 2009," Clancy said. "Renewable Energy Group and our network of biodiesel production facilities were very pleased with the final outcome of the legislation as it helps promote growth in our industry. We especially appreciate the Iowa biodiesel industry and Iowa biodiesel investors for calling key House members to support the final version of the bill."
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