Washington’s Shotgun Wedding

Celebrating the long-awaited passing of U.S. biofuels tax credits
By Michael McAdams | December 27, 2010

The new year is likely to bring an event that Washington hasn’t seen in a very long time. A president trying to get back on his feet after a sizeable mid-term electoral defeat, while trying to maneuver a legislative and political landscape made increasingly complex not only by the newly empowered Republicans, but also factions from within his own party. It’s likely to play out much like an old-fashioned shotgun wedding with a future father in-law ready to call out any missteps by an anxious groom.

The nuptials began with a tenuous legislative dance last month when, on Dec. 15, the Senate, by a vote of 81 to 19, approved President Obama’s compromise tax package. The following day, despite three months of rancorous positioning, the House of Representatives agreed to the Senate bill by a vote of 277 to 148. For the biofuels industry this was a long time coming. It has been more than two years of waiting that has resulted in job losses among our companies, so this was the best news of the holiday for those who might now be able to go back to work building better fuels. 

The final bill, which the president quickly signed into law following the late night vote in the House, renewed the existing biofuels tax credits. Specifically for the ethanol industry, Congress renewed the current ethanol tax credit at 45 cents per gallon despite a highly contentious and political fight waged by a significant opposition. But the credit was simply extended until Dec. 31. The bill also extended the ethanol tariff for an additional year and left the current 54-cent tariff rate in place. 

As for the biodiesel and renewable diesel industries, the bill retroactively extended the biodiesel and biomass-based diesel credits from Jan. 1, 2010, until Dec. 31, 2011. The same treatment was afforded the alternative fuels mixture credit. Additional effort to give algae producers parity with cellulosic producers, by adding them to the definitions of the cellulosic production tax credit, simply ran out of time and encountered resistance to any new provisions being placed in the package. The algae industry and others made a significant and worthy effort to position this issue as one of the priority amendments to be considered when the new Congress goes to work.

The tax package provides our industry much needed and long awaited economic encouragement, but there is much work to be done in the new year. At the end of the year-long push, the combination of biofuels associations and individual companies were unable to convince the Congress to add biofuels under coverage of the Investment Tax Credit, section 1603. In fact, the president’s original compromise with the Republican leadership struck the provision from continuation. This was largely the result of the Republicans’ focus on repealing new provisions which had been authorized under the American Recovery Act. Once the bill was released to Capitol Hill, lawmakers of both parties reviewed the effectiveness of the 1603 provision and were compelled to extend the refundable credit for an additional year. Our industry’s efforts to add a new component fell short, however, due to concerns over additional added cost and simply time.

In somewhat of a surprise, the Senate Appropriations Committee attempted to cut back the Biomass Crop Assistance Program at USDA, a move that was withdrawn at the last hour. At press time, a continuing resolution was being considered that would fund the government at current levels, including the BCAP program at 2010 levels.

Our industry’s enhanced efforts to work more closely together over the past six months must continue, with an even clearer focus on how to sustain current first-generation fuels while building the necessary public policy to expedite the deployment of the second generation advanced biofuels. We will return to a new Congress in 2011 with a quarter of the entire House being freshman members. This will require an extensive and compelling education effort on behalf of the biofuels industry. The political fights that we witnessed over the past six months on tax policy will not go away. They will be renewed afresh and a new policy discussion will begin. 

The biofuels industry will need to be ready to engage as a collective force once again, as we will be faced with the last year of the tax provisions, again. Perhaps our New Year’s Resolution as an industry should be to develop a comprehensive game plan that reflects a reasonable set of requests from all of us associated with the biofuels industry. A toast to the new year from the nation’s capital.

Author: Michael McAdams
President, Advanced Biofuels Association
(202) 747-0518