Trade groups clash over Grassley bid to change tax credit

Source: Amanda Reilly, E&E reporter • Posted: Thursday, October 29, 2015

Iowa Republican Sen. Chuck Grassley’s bid to change the biodiesel industry’s tax credit is pitting biofuel trade groups against each other.

On one side, the Advanced Biofuels Association (ABFA), whose members include foreign producers of palm-oil-based biodiesel, is urging Congress to retain the existing tax credit, which goes to companies that blend biodiesel into petroleum diesel — including entities that produce biodiesel overseas and blend it in the United States.

On the other is the National Biodiesel Board, which yesterday threw its weight behind the Grassley provision that would convert the incentive to a production tax credit for domestic producers, according to a letter obtained by E&E Daily.

“While you have heard from groups representing foreign producers and blenders of foreign fuel, the National Biodiesel Board represents the vast majority of the U.S. biodiesel and renewable diesel industry, and we can assure you that the industry is overwhelmingly supportive of this reform,” NBB Vice President of Federal Affairs Anne Steckel wrote in the letter to leaders of the House Ways and Means Committee.

Congress established the $1-a-gallon biodiesel tax credit in 2005 but has allowed it to expire many times. Lawmakers retroactively extended the credit last December, but it expired again at the beginning of the year.

The Senate Finance Committee took up legislation in July to extend a number of renewable energy tax incentives. Grassley and Sen. Maria Cantwell (D-Wash.) introduced the biodiesel provision; it was included in the committee’s package on a voice vote.

The proposal would extend the tax credit for two years. Starting in 2016, the incentive would become a producer tax credit and explicitly deny access to foreign producers of biodiesel and renewable diesel.

“The amendment to convert to a production credit would improve the biodiesel incentive in many ways. It would make the biodiesel incentive easier to administer,” Grassley said in a statement provided by his spokeswoman. “Also, a credit for domestic production would ensure that we’re incentivizing a domestic industry rather than subsidizing imported biofuels.”

Grassley also said the credit would also become easier to administer by limiting it to producers of biodiesel and renewable diesel.

He has noted that the amendment would provide for a credit for retailers “who have shown a commitment to biofuels” by blending large amounts of biodiesel in the previous year.

But the ABFA, petroleum marketing organizations and the National Association of Truck Stop Operators earlier this month wrote Ways and Means Chairman Paul Ryan (R-Wis.) and ranking member Sander Levin (D-Mich.) urging them to reject the measure (E&ENews PM, Oct. 22).

They warned that the change, by denying access to the credit to foreign producers, would likely result in a trade violation. They also said that the credit would come at the expense of gas station owners that have purchased expensive equipment to dispense blended fuels.

ABFA President Michael McAdams said changing the credit amounts to “siphoning the benefits to a small group of producers and punishing everyone else along the supply chain, including consumers.”

“The current blenders’ credit for biofuels creates a competitive market for biodiesel and renewable diesel, which benefits the American consumer,” McAdams said. “Continuing and extending the original policy allows truckers and consumers to share in the value, it encourages consumer acceptance, and it benefits blenders and those who provide the feedstocks that make these cleaner, better fuels.”

But the National Biodiesel Board has suggested that ABFA and the petroleum groups want to prop up foreign producers. Among ABFA’s approximately 30 members companies are two foreign producers of palm-oil-based biodiesel: Finland-based Neste Oil and Singapore-based Wilmar International Ltd.

“We understand that there are groups representing petroleum interests or foreign biofuel importers who are looking after their own interests,” NBB spokesman Ben Evans said. “But this tax incentive isn’t about encouraging imported biodiesel from Argentina or palm biodiesel from Indonesia. It’s about stimulating U.S. production and jobs.”

NBB yesterday urged Ryan and Levin to act quickly on the Senate tax extenders package that includes the change to the biodiesel incentive.

“The value of the incentive will continue to be shared throughout the distribution chain, culminating in savings to the consumer,” Steckel wrote. “Producers, blenders, retailers and consumers will all continue to benefit; the point of taxation will simply be moved ‘upstream’ to the producer level where it can be more effectively monitored and tracked.”

Iowa biodiesel producers yesterday also sent a letter to all members of the state’s delegation calling for swift passage of the Senate extenders legislation.

According to Scott Irwin, a professor of agricultural and consumer economics at the University of Illinois, Urbana-Champaign (UIUC), the current form of the credit and the multiple retroactive reinstatements of its benefits have led to the creation of sharing clauses in contracts between biodiesel producers and blenders.

In an analysis published on UIUC’s Farmdoc Daily, Irwin said that the biggest change of the Grassley-Cantwell amendment would be on biodiesel imports from other countries. Refiners have used about 500 million gallons of year of foreign biodiesel and renewable diesel to obtain credit under the renewable fuel standard program, through which U.S. EPA sets mandates for biofuel use. Palm oil biodiesel is currently excluded from the program.

Limiting the tax credit to producers would effectively result in a $1-per-gallon import tariff on foreign biodiesel and renewable diesel, Irwin said.

“This would restrict the total supply of biodiesel in the U.S. and shift a nontrivial amount of the cost of complying with the RFS biodiesel mandate from taxpayers to consumers,” Irwin said.

ABFA and the petroleum groups say they’re looking out for consumers.

Changing the tax credit, they said, means consumers “will pay higher prices for the shipment of goods.”