Biofuels Incentives Pass

OMAHA (DTN) -- Though the biodiesel industry and some members of Congress had been pushing for reform of the biodiesel blenders tax credit on Friday, they settled for the next-best thing: A retroactive extension of the $1-per-gallon credit through Dec. 31, 2016.

Looking back on the history of the credit, the industry has faced many last-minute extensions, making it difficult for biodiesel producers to continue operations long-term. In fact, this last time around, biodiesel producers operated a full year without the credit -- as it last expired in December 2014. The tax credit was allowed to expire four of the past six years in all.

Still, officials at the National Biodiesel Board are holding out hope for reform sometime in 2016. Leading up to the passage of a larger spending bill Friday that includes the biodiesel tax credit and others, NBB said the extension is good news.

"Restoring this tax incentive will create jobs and economic activity at biodiesel plants across the country, so we want to thank leaders in the House and Senate for proposing this extension," NBB Vice President of Federal Affairs Anne Steckel said in a news release Wednesday. "Unfortunately the impact would be muted because this proposal would continue, allowing foreign biodiesel to qualify for the tax incentive. This not only costs taxpayers more money but it paves the way for foreign fuels that already receive incentives in their home countries to undercut U.S. production.

"We have yet to hear any member of Congress articulate why U.S. tax dollars should be used to support foreign production. Clearly, incentivizing predatory biodiesel imports was not the intent of Congress, so we will continue urging Congress to make this reform."

The current biodiesel tax credit allows biodiesel produced overseas and blended with diesel in the United States to qualify for the credit. As a result, biodiesel imports have been on the rise in recent years. According to NBB, in 2012 the U.S. imported less than 100 million gallons of biodiesel. For 2015, imports will exceed 650 million gallons, and the Energy Information Agency recently estimated the volume could grow to more than 700 million gallons in 2016. The vast majority of those imports are coming from companies in Argentina, Asia and Europe.

Monte Shaw, executive director of the Iowa Renewable Fuels Association, said in a statement that the tax credit will help clear the way for Iowa companies to return to production.

"The retroactive extension for 2015 is key because many biodiesel producers, including some in Iowa, had to essentially bet their company's future in hopes the tax credit would return retroactively," he said. "Looking forward, having the tax credit in place for 2016 will provide a positive assurance to the biodiesel community that will support jobs and economic activity."

Ames, Iowa-based Renewable Energy Group, the nation's largest biodiesel producer, said in a news release Friday that along with rising volumes called for in the Renewable Fuel Standard, the industry finds itself in a better situation than it did last year.

Renewable Energy Group President and Chief Executive Officer Daniel J. Oh said passage of the credit is a good start.

"With the president's signature, this worthwhile incentive, combined with higher RFS2 biomass-based diesel volumes, will reinforce our company's continuing growth by encouraging higher blends and usage of advanced biofuels throughout North America," he said. "It provides multiple benefits through enhancing our environment, energy and food security and local economies. We owe a large debt of gratitude to our bipartisan congressional champions, in particular Sen. Charles Grassley, R-Iowa, and Sen. Maria Cantwell, D-Wash.

"Their commitment to our industry has been constant and unwavering. We will continue to work with them and our industry partners to advocate for a conversion to a producer's tax credit in the future because we believe that is how this credit should be structured."

Also included in the bill are tax incentives aimed at advanced biofuels. That includes a two-year extension of the Second Generation Biofuel Producer Tax Credit, the Special Depreciation Allowance for Second Generation Biofuel Plant Property, and the Alternative Fuel Mixture Tax Credit.

Bob Dinneen, president and chief executive officer of the Renewable Fuels Association, said in a news release Wednesday the credits are important to a cellulosic ethanol industry struggling to launch full commercial production.

"By including these important tax incentives in the spending bill, congressional lawmakers sent a strong signal that they are interested in ensuring and encouraging the continued growth and innovation of our nation's biofuels industry," he said.

"These incentives are crucial for leveling the playing field in a tax code that is, unfortunately, overwhelmingly tilted toward the oil and gas industry. Oil companies have long benefited from billions in accelerated depreciation, intangible drilling expenses, and countless other tax breaks that are permanently imbedded in the tax code. Fundamental tax reform is critical to correct this imbalance."

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @ToddNeeleyDTN

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