Following passage of the biodiesel tax incentive last fall, the U.S. biodiesel industry now faces more challenges than ever. That is, the industry is currently dealing with implementation of the tax incentive through the U.S. Department of Treasury and the Internal Revenue Service (IRS); extension of the biodiesel tax incentive beyond 2006; the prospects of a federal renewable fuels standard (RFS) in a comprehensive energy bill; appropriations projects and other important issues. Together, all of these items have made biodiesel a hot, and exciting issue on Capitol Hill, setting the tone for the 109th Congress, which got underway in January. The industry is poised to continue working with its key champions: lawmakers like Senate Finance Committee Chairman Chuck Grassley, R-Iowa; Sen. Blanche Lincoln, D-Ark.; Reps. Kenny Hulshof, R-Mo., and Earl Pomeroy, D-N.D.

To assure that the biodiesel industry continues to grow, legislative priorities have been established for 2005, specifically including:

Extension of the Volumetric Ethanol Excise Tax Credit (VEETC): Our aim is to extend the biodiesel tax incentive at the existing levels of $1 per gallon for "agri-biodiesel" and 50 cents per gallon for other biodiesel. Extending this legislation would give biodiesel investors confidence that the industry will continue receiving federal support over the long term; it would also maximize benefits for U.S. producers, the economy and the environment. The existing incentive is scheduled to expire at the end of 2006.

VEETC feedstock list clarification: VEETC lists 11 specific vegetable oils, as well as animal fats, as feedstocks eligible for the agri-biodiesel tax incentive. This list was intended by VEETC's Congressional sponsors to be exclusive (i.e., that non-listed vegetable oils such as palm oil should not be eligible). However, it may be determined that the VEETC list is not exclusive, and non-listed vegetable oils are eligible. This issue needs to be addressed in the VEETC extension legislation.

Congress approved the biodiesel tax incentive to achieve three goals: 1) to enhance domestic energy security; 2) to provide additional markets for domestic agricultural products; and 3) to improve air quality by creating an incentive for an environmentally beneficial alternative to diesel fuel. Permitting non-listed vegetable oils, including imported oils, to qualify as agri-biodiesel feedstocks would defeat both the domestic energy security and agricultural market expansion purposes of the VEETC legislation.

The statute defines agri-biodiesel as: "biodiesel derived solely from virgin oils, including esters derived from virgin vegetable oils from corn, soybeans, sunflower seeds, cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds, rice bran and mustard seeds, and from animal fats." A modification is required specifying eligible virgin oils are derived solely from the listed feedstocks, and to clarify the word "including" means "including only" rather than "including but not limited to." One option would be: "biodiesel derived solely from virgin oils, including only esters derived (i) from virgin vegetable oils from corn, soybeans, sunflower seeds, cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds, rice bran and mustard seeds, and (ii) from animal fats."

Establish a biodiesel offsetting import tariff: With VEETC in place, it is now imperative that an offsetting tariff on imported biodiesel be established, similar to the duty in place for imported ethanol. Otherwise, U.S. taxpayers will be subsidizing foreign biodiesel producers, which was not intended by the sponsors of the legislation, and the objectives of the VEETC program will not be served.

Passage of an RFS: The RFS must be enacted as soon as possible to reflect and encourage expansion of biodiesel and ethanol production and demand.

Biodiesel appropriations projects: The Commodity Credit Corporation (CCC) Bioenergy Program and Biodiesel Education Program should be fully funded for the fiscal year 2006 appropriations cycle.

-Supporting the CCC Bioenergy Program at the originalauthorization level of $150 million annually, as outlined in the 2002 Farm Bill: The program is critical to new and existing biodiesel facilities because it allows a more affordable purchase of inputs for a start-up company. Due to the risk of running a new multimillion dollar energy company, the CCC Bioenergy Program is a make-or-break program for biorefineries in their first year of production.

-Supporting full funding of the Biodiesel Fuel Education Program at the current authorization level of $1 million annually, as outlined in the 2002 Farm Bill: This program is vital to the biodiesel industry. The education program was developed to educate, research and promote growth in the biodiesel industry.

Mark Palmer is a Washington, D.C., representative of the American Soybean Association. He can be reached by e-mail at mpalmer@gordley.com.