Congressional Efforts Needed to Secure Future

By Brian Kuehl | September 23, 2013

As Congress considers tax reform in the coming months, producers must make the case for continued support for the U.S. ethanol industry.  Without significant outreach to Congress from individuals, companies and associations that support ethanol, existing incentives could be pared back or even eliminated.  

Kennedy and Coe closely tracks developments on Capitol Hill related to the ethanol industry in order to ensure clients have properly positioned their businesses to take advantage of important legislative developments.

Two tax provisions are critical to continued development of the U.S. cellulosic industry. First, the tax code currently provides a Second Generation Production Tax Credit that gives ethanol plants a tax credit of $1.01 per gallon of cellulosic ethanol produced. Second, the code provides for an Accelerated Depreciation Allowance for Cellulosic Biomass Properties, which allows producers of cellulosic biofuel to take a 50 percent depreciation in the first year for property used to produce cellulosic ethanol.

Another important provision to the ethanol industry is the Assets for Independence tax credit, which allows a retailer to claim 30 percent of the cost of installing alternative fuel infrastructure (up to $30,000). This program has been useful in encouraging installation of E85 pumps and will be critical in the future as E85 grows in importance as a compliance strategy for the renewable fuel standard.

To meaningfully incentivize market behavior, these provisions cannot be extended on a year-to-year basis. All three provisions are set to expire at the end of 2013. To support continued development of the U.S. ethanol industry, Congress should extend these provisions for at least five years to allow market participants to make sensible financing decisions.

Efforts to simplify and reform the tax code are being led by Sen. Max Baucus, D-Mont., who chairs the Senate Finance Committee and by Rep. Dave Camp, R-Mich., who chairs the House Ways and Means Committee. Baucus and Camp have both engaged in a lengthy process to determine provisions that will remain in the code following tax reform.

Baucus started with a position that all special provisions should be taken out of the tax code unless a case can be made to add the provision back. In the U.S. House, Camp has enlisted members of the Ways and Means Committee to lead 11 working groups to review the tax code, including provisions related to energy.  

Kennedy and Coe has learned there will likely be a tax reform bill produced by the House committee in early October and the Senate Finance Committee could produce a bill shortly thereafter. 

As the Committees draft these bills, it’s important for members of Congress to be reminded of the recent history related to first-generation ethanol. In January 2012, Congress eliminated the first-generation ethanol tax credit and also repealed the ethanol tariff. With elimination of the production tax credit, the ethanol industry has already made a significant contribution to the cause of tax reform—both in terms of revenue creation and tax code simplification.

It is against this backdrop that Congress will consider whether to keep and extend the production tax credit for cellulosic ethanol, the accelerated depreciation allowance for cellulosic biomass property and the alternative fuel infrastructure tax credit. Individuals, companies and associations that support continued development of the U.S. ethanol industry should contact members of the tax-writing committees.

Remind your elected officials that Congress eliminated the ethanol production tax credit only two years ago and let them know why the cellulosic provisions and AFI provisions are important. Ask that Congress extend these provisions for five years or more rather than for one year at a time.

Author:Brian Kuehl, 
Director of Federal Affairs 
Kennedy and Coe LLC