Still Time to Get Biofuels Support Right

August 1, 2011 |

Say goodbye to the VEETC tax credit and move on? Not so fast, cautions BIO’s Brent Erickson. Here’s why.

By Brent Erickson

Reports of the Volumetric Ethanol Excise Tax Credit’s (VEETC) early demise have been a bit overblown. Though several groups and reporters believed the die was cast and the potential revenue savings would be redirected to deficit reduction, alternative fueling infrastructure and extended support for advanced biofuels, at this writing VEETC remains in place and is still scheduled to expire at the end of the year.

The potential for redirecting federal budget from this credit to other priorities will probably shrink between now and December 31. However, the advanced biofuel and biorefinery community still has time to emphasize to policy makers the vital need to extend supportive tax policies for advanced biofuels and keep the Renewable Fuels Standard intact.

Agreement among the parties

There is already agreement among some on the general need to extend tax credits for refueling infrastructure, small biorefiners and cellulosic biofuel producers as well as making algae biofuel producers eligible for production tax credits. Extension of these credits will provide a stable and predictable climate for investors in these specific technologies.

Like algae, though, there are many technologies with the potential to reduce both reliance on foreign oil and emissions that are rapidly approaching commercial readiness but are not currently being considered for tax credits. We believe advanced biofuels should be provided incentives as well. But there is no agreement on how this should be accomplished and for how long a time period.

VEETC and biobutanol

Expiration of VEETC would affect tax credits for other alcohols, and there are implications for tariffs linked to VEETC that could have unforeseen impacts for the advanced biofuel industry. A little remarked consequence of VEETC’s elimination is that advanced alcohol biofuels, such as butanol, would also lose a source of support. It is conceivable that butanol could be commercialized in the next few years because it can be done with lower capital requirements than, say, cellulosic biofuels.

Newer “drop-in” fuels, which are critical to addressing transportation challenges beyond road transport, also may not require the infrastructure changes needed for ethanol. Extension of the alternative alcohols tax credit, which incentivizes butanol and other alcohols, may need to be considered.

Incentivizing the whole barrel

It would be desirable if the tax code also incentivized commercialization of innovative renewable chemicals and biobased products, which have the same potential as advanced biofuels to create lasting, high-quality domestic jobs while revitalizing rural economies, improving balance of trade, and reducing reliance on foreign oil. These high-value, low-volume specialty chemicals are also reaching commercialization faster than cellulosic biofuels because they are less capital intensive. We need to start thinking and planning in terms of integrated biorefining systems instead of just thinking of individual molecules.

Tax incentives helped the ethanol industry get started and mature. The U.S. must continue to build production facilities for all sustainable forms of liquid transportation fuels, and we need to ensure that necessary policies remain in place to encourage investment in next generation advanced biofuels. BIO has advocated for a technology neutral production tax credit with an option for an investment tax credit that could be available through 2016.

Stability and predictability

The option would allow advanced biofuel and renewable chemical producers to select the type of assistance that is appropriate for their technology at its current stage of commercial development. It would also directly incentivize investment by offering stability and predictability for a set number of years.

U.S. companies have been world leaders in producing technology for products that can reduce reliance on foreign oil. Breakthroughs in biotechnology are enabling a revolution in advanced biofuels and renewable chemicals. U.S. companies need to be leaders in bringing the products to the marketplace and creating jobs here in the United States, and to do that we need to be strong and active advocates for appropriate policy incentives.

It is important to keep in mind that if VEETC expires we should not inadvertently undercut support for advanced biofuels going forward.

Brent Erickson is Executive Vice-President of BIO and head of the organization’s Industrial Biotechnology Section

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