Tax incentive implementation in progress

By | December 01, 2004
Passing the biodiesel tax incentive was only the beginning in the long-anticipated achievement of encouraging more Americans to use renewable biodiesel by making it more cost-competitive with diesel. The next phase is implementing the Volumetric Ethanol Excise Tax Credit (VEETC), which includes the biodiesel tax incentive. The NBB and the American Soybean Association (ASA) joined forces with the Renewable Fuels Association in meeting with the Internal Revenue Service (IRS) Excise Tax Enforcement team in November.

"Since this is the first federal tax incentive for biodiesel, working with the IRS to assure regulations are effectively written and implemented is critical," said ASA lobbyist Mark Palmer. The tax incentive goes into effect Jan. 1, 2005.

While a number of potential issues within the biodiesel industry have been identified, the IRS was most interested in enforcement. This includes registration of biodiesel producers, brokers and blenders, and putting in place a reporting system to track biodiesel and prevent fraud. ASA, NBB and other biodiesel industry members will continue consulting with the IRS on a regular basis throughout this process and beyond to assure a policy that will work both for the biodiesel industry and for the IRS.

CCC bioenergy plan cutA federal program that has played a pivotal role in building the production side of the biodiesel industry recently received a major cut in funding. When Congress passed the Consolidated Appropriations Bill (HR. 4818, H.R. 108-792), it funded the Commodity Credit Corporation (CCC) Bioenergy Program at $100 million. That reflected a $50 million cut requested by the administration and maintained in the U.S. House and Senate.

The Bioenergy Program is a continuous program to reimburse ethanol and biodiesel producers for part of the cost of purchasing commodities to expand existing production. There have been efforts in the past to reduce the amount of program funds, but until now it has been maintained as a $150 million program. This is the first year it appears it won't be fully funded.

"At a period where we're cheering the huge victory of the tax incentive to lower the end cost to consumers, we're losing money on the production support side of things," said Gene Gebolys, president of World Energy, a biodiesel supplier based in Chelsea, Mass. "This is a rapidly emerging concern, because biodiesel producers will now receive just 67 cents on the dollar to what they would otherwise have received." He also pointed out that the production incentive is split between biodiesel and ethanol, and the ethanol market is rapidly expanding.

Gebolys heads the NBB Bioenergy Program Taskforce, developed to address ways the industry might be able to make the program more effective. "We want to look at market distortions and address them," he said. "We've also been engaged for some time in figuring out what comes next." Congress will be developing the upcoming Farm Bill soon, and the industry has been taking preliminary steps to figure out what a new energy title might look like and what impact it will have on biodiesel growth.

New ag secretary hailed as biofuels advocatePresident Bush announced Dec. 2 his nomination of Gov. Mike Johanns, R-Neb., for secretary of the USDA. Johanns will succeed outgoing USDA Secretary Ann Veneman.

"I've known Mike for a number of years, going back to my own service as a governor," the president said as he introduced Johanns. "I know firsthand his deep commitment to a strong farm economy. He's been a leader on drought relief in Nebraska and throughout the Midwest. He's a strong proponent of alternative energy sources, such as ethanol and biodiesel. He's traveled the world to promote American farm exports."

The American Soybean Association heralded the decision as one that will be good for biodiesel and for soybeans.

"U.S. agriculture in general, and our soybean industry in particular, face several major challenges and opportunities," ASA President Neal Bredehoeft said. "Trade negotiations must continue to improve access for U.S. soybeans. And with enactment of a new tax incentive, we have a golden opportunity to build a vibrant biodiesel industry in the U.S. We look forward to Gov. Johanns' leadership on these and other priorities," Bredehoeft said.

Johanns was elected governor of Nebraska in 1998 and re-elected in 2002. His agricultural priorities have been trade, tax relief and biofuels.
Greg Anderson, chairman of Nebraska Soybean Board, said, "I have had a chance to get to know Gov. Johanns over the years, and I believe he will work hard for farmers and for biodiesel as Secretary of Agriculture. He has been a strong advocate for renewable fuels. He's knowledgeable about biodiesel and familiar with its many benefits, which is a great thing for the biodiesel industry."
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