Tax credit expiration prompts rethinking of RFS mandates

Source: Marc Heller, E&E News reporter • Posted: Monday, October 2, 2017

The expiration of the federal tax credit for biodiesel may be changing the way U.S. EPA looks at the renewable fuel standard.

Gone for nine months, the $1-per-gallon credit for biodiesel blenders played into supply and demand enough that, in its absence, the agency is weighing reductions in the mandated level of biodiesel for 2019.

Judge rules EPA to release more documents on ethanol test fuels.In a notice earlier this week, EPA sought public comment on data it may cite to lower some renewable fuel mandates.

Biodiesel faces challenges, the agency said, because of new restrictions on how much can be imported and because the tax credit’s expiration has made biodiesel blends more expensive.

Although the price of unblended biodiesel appears unaffected, EPA said that “we expect that the expiration of the tax credit has had significant impact on the effective price of biodiesel sold to blenders. This is because the biodiesel tax credit that expired at the end of 2016 was received by biodiesel blenders, rather than biodiesel producers.”

EPA said the estimated effective price of biodiesel to blenders has hovered around $3.50 per gallon, spiking by $1 per gallon after the tax credit expired. Petroleum-based diesel prices have been around $1.50, wholesale, the agency said.

EPA also cited potential U.S.-imposed duties on biodiesel imported from Indonesia and Argentina; the U.S. International Trade Commission and the Commerce Department are scheduled to decide on that issue by Dec. 29.

The agency didn’t say what level of biodiesel it may set for 2019 but said the law calls for a minimum of 1 billion gallons. An earlier EPA proposal put the level at 2.1 billion gallons, keeping it steady with this year; a final regulation is due in November.

In some ways, EPA’s notice mirrors concerns raised by fuel and petrochemical companies that wrote to the agency on the issue earlier this month. EPA cited a letter from the American Fuel and Petrochemical Manufacturers regarding biodiesel supplies and the challenge posed by the tax credit’s expiration.

The tax credit’s future hinges on a broader tax overhaul being discussed in Congress. The latest plan floated by Republicans doesn’t spell out the myriad tax breaks that may be eliminated or saved, all of which are up for negotiation.

Sen. Chuck Grassley (R-Iowa), one of the leading advocates for renewable fuels, is pressing for the tax credit’s inclusion, said a spokeswoman, Jill Gerber. He also aims to change the credit to a producer’s credit, meaning imports wouldn’t receive it.

Changing the credit would reduce the cost of the government in foregone taxes. It could also affect EPA’s assessment of the credit’s impact on price, supply and demand.

The National Biodiesel Board said it will push for the tax credit’s inclusion in any tax-related bill that reaches a vote, whether a tax overhaul or a more modest measure.

“The RFS and the tax credit both play critical, complementary roles in supporting biodiesel volumes and creating incentives for building out infrastructure,” the NBB told E&E News in a statement.

EPA’s proposal to reduce renewable fuels “reads like a solution in search of a problem,” the NBB said. “After all, there is ample feedstock, capacity and room for growth in the domestic biodiesel industry.”

Grassley charged the agency with breaking President Trump’s public support for renewable fuels.

“It’s outrageous that the EPA would change course and propose a reduction in renewable fuel volumes in this way,” Grassley said Tuesday in a speech on the Senate floor. “This seems like a bait and switch from the EPA’s prior proposal and from assurances from President Trump himself and Cabinet secretaries in my office.”