The Fiscal Cliff deal: the definitive biofuels guide

January 3, 2013 |

Three key tax credits extended for cellulosic biofuels, biodiesel and renewable diesel; playing field leveled for algae; Farm Bill provisions extended, but mandatory funding eliminated for energy title.

Well, the viziers and examiners have completed their go-through on the American Taxpayer Relief Act of 2012 – the fiscal cliff-averting bill that is now awaiting President Obama’s signature.

Four tax provisions were in the bill that positively impact biofuels – and one negative impact in elimination of mandatory energy program funding in the Farm Bill extension.

What’s In

Cellulosic biofuels producer tax credit.  Under current law, facilities producing cellulosic biofuel can claim a $1.01 per gallon production tax credit on fuel produced before the end of 2012.  This provision was created in the 2008 Farm Bill.  The provision would extend this production tax credit for one additional year, for cellulosic biofuel produced through 2013.

The cellulosic biofuel producer credit is redesignated “second generation biofuel producer credit” and is (i) expanded to apply to liquid fuel derived from cultivated algae, cyanobacteria, or lemna and (ii) extended to apply to qualified fuel production before January 1, 2014. This provision is estimated to cost $59 million over ten years.

Incentives for biodiesel and renewable diesel.  The bill extends for two years, through 2013, the $1.00 per gallon tax credit for biodiesel, as well as the small agri-biodiesel producer credit of 10 cents per gallon.  The bill also extends through 2013 the $1.00 per gallon tax credit for diesel fuel created from biomass. This provision is estimated to cost $2.181 billion over ten years.

The biodiesel tax incentive expired on Dec. 31, 2011. A recent study found that the industry would have produced an additional 300 million gallons this year with the tax incentive in place. That would have supported some 19,213 additional jobs, for a total of 83,258 jobs supported by the industry nationwide, according to the study, conducted by Cardno ENTRIX, an international economics consulting firm.

Cellulosic biofuels bonus depreciation.  Under current law, facilities producing cellulosic biofuel can expense 50 percent of their eligible capital costs in the first year for facilities placed-in-service by the end of 2012.  This provision was created in the 2008 Farm Bill.  The provision would extend this bonus depreciation for one additional year for facilities placed-in-service before the end of 2013 – and is also extended to algae producers.

The proposal also expands the definition of qualified cellulosic biofuel production to include algae-based fuel. This provision is estimated to cost less than $500,000 over ten years.

What’s out – mandatory funding for Farm Bill energy programs

Agricultural Programs. Section 701 of the Bill extended all provisions of the 2008 Farm Bill through September 30, 2012 – including funding levels for mandatory programs. But, in a last-minute surprise, the Act excludes funding for energy title programs from the extension of the already expired Farm Bill.

Legislation passed by the U.S. Senate earlier this year to extend the Farm Bill for five years set mandatory funding levels each year for renewable energy and energy efficiency programs. A five-year Farm Bill passed by the House Agriculture Committee earlier this year provided discretionary funding for these programs. And draft legislation for a one-year extension of the current Farm Bill agreed to by the House and Senate Agriculture Committee leaders and released last week set mandatory funding levels for these programs in 2013.

Programs affected include Rural Energy for America Program (REAP), Biomass Crop Assistance Program (BCAP), Biorefinery Assistance Program (BAP) and Biobased Markets Program (Biopreferred).

POLITICO published the full text of the bill, here.

Administration Reaction

Secretary of Agriculture Tom Vilsack

“While I am relieved that the agreement reached prevents a spike in the price of dairy and other commodities, I am disappointed Congress has been unable to pass a multi-year reauthorization of the Food, Farm and Jobs bill to give rural America the long-term certainty they need and deserve.”

Industry Reaction

National Biodiesel Board – Anne Steckel, vice president of federal affairs
“This is not an abstract issue. In the coming months, because of this decision, we’ll begin to see real economic impacts with companies expanding production and hiring new employees.”

Renewable Energy Group, the largest US producer of biodiesel

“We are thankful. This tax credit provides certainty for our petroleum distributor customers and, in turn, market stability for commercial biodiesel producers like us.”

Randy Olson, executive director, Iowa Biodiesel Board

“Iowa biodiesel experienced a mixed bag in 2012.  Although the federal Renewable Fuel Standard helped create market stability, one Iowa plant was forced to shut its doors temporarily. The reinstatement of the tax incentive will help Iowa biodiesel reach its full potential.”

Brent Erickson, executive vice president of BIO’s Industrial and Environmental Section

“We thank Congress for extending the producer tax credit and bonus depreciation and enabling algae producers to qualify. Stability in such policies is crucial to maintaining private investment.”

Mary Rosenthal, executive director of the Algae Biomass Organization

“Achieving tax parity with other biofuels has been a key legislative priority for ABO since our founding in 2008,” said the trade association for the U.S. algae industry. By leveling the playing field, this legislation will help foster the continued investment in algae technology companies as well as accelerate the commercial production and the sale of algae-based fuels.”

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