Potential Tax Incentives for Domestic Biodiesel Production

February 18, 2014. Recent legislation introduced by Senators Chuck Grassley (R-IA) and Maria Cantwell (D-WA) aims to reinstate a tax incentive for the production of domestic biodiesel. The goal of this legislation is to stimulate job creation and increase America’s supply of bio-fuels while decreasing the countries dependence on imported fossil fuels.

A news release from last week stated that “[t]he measure, the Biodiesel Tax Incentive Reform and Extension Act of 2014, or S. 2021, would reform and extend the $1-per-gallon tax credit for biodiesel producers through 2017 after Congress allowed the law to lapse at the end of 2013. Congress has allowed the credit to expire three times since the end of 2009.”

From its initial introduction in 2005 the biodiesel production credit has played a critical role in increasing the production of biodiesel from 25 million gallons in 2004 to 690 million gallons in 2008. Economic impact figures from 2011 indicate that the biodiesel industry was responsible for generating an estimated $1.7 billion in income and was responsible for the creation of approximately $3 billion in GDP.

Specifically, the Cantwell-Grassley measure:

• Provides a $1 per-gallon tax credit for the production of biodiesel, renewable diesel and aviation jet fuel that complies with fuel standards and Clean Air Act requirements.
• Increases the credit from $1 to $1.10 for the first 15 million gallons of biodiesel produced by small producers with an annual production capacity of less than 60 million gallons.
• Eliminatespotential abuses and simplifies how the tax is administered by restricting the credit to fuel producers and excluding fuel blenders from eligibility. By focusing on production, this bill would eliminate any remaining opportunity for abuse known as “splash and dash” in which oil companies add a few drops of biodiesel to petroleum diesel to qualify for the tax credit. The change also ensures the credit benefits domestic producers – the old law allowed blenders to receive the credit for blends that included foreign-imported biodiesel.
• Simplifies the definition of “biodiesel” to encourage production from any biomass-based feedstock or recycled oils and fats.
• Tightens compliance and reduces administrative burdens on taxpayers by simplifying the coordination between the income tax credit and the excise tax liability.
• Extends this tax credit for three years, giving needed financial predictability so that more facilities can be brought online in the United States.

Senator Grassley detailed his support stating “[c]ontinuing incentives for biodiesel and other green energy sources supports jobs, helps the environment and increases energy independence. There's every reason to support biodiesel production.”

For the most current updates regarding the status of the Biodiesel Tax Incentive Reform and Extension Act of 2014 continue to monitor the GLF Ag Law Blog. For additional information about Ag Law contact the Goosmann Law Firm at info@goosmannlaw.com or call 712-226-400.