Biofuel groups advocate for tax credit extensions at hearing

By Erin Voegele | March 14, 2018

On March 14, the U.S. House of Representatives Committee on Ways and Means held a hearing on post tax reform evaluation of recently expired tax provisions. Several representatives of the biofuels industry offered testimony at the event.

In his opening remarks, Rep. Vern Buchanan, R-Fla., chairman of the Tax Policy Subcommittee, spoke about the need to examine tax extenders.

“Last year Congress enacted the most comprehensive and sweeping rewrite of our tax laws in over three decades,” he said. “With our modern, pro-growth tax code now in place, we need to turn our focus to maintaining it and making further refinements and enhancements. We don’t want to wait another 30 years for the next tax reform.  Instead, our ongoing focus will be on continuing to make improvements to our tax code to promote growth and to provide fairness and simplicity for all taxpayers.

According to Buchanan, the March 14 hearing aims to evaluate the set of provisions that “have been renewed so frequently they are most often called ‘tax extenders.’” Following the recent tax reform, Buchanan said “it should not be business as usual with respect to the tax extenders.”

“Now is the time to examine each of these provisions one-by-one to determine whether and how they fit into the new tax code,” Buchanan added. “That means taking a hard look at whether each provision provides value to American taxpayers.  For each provision, we will ask:  what role does this provision play in the new tax code? If it is no longer needed because of the reforms that have been enacted, the provision should be eliminated.  If the provision continues to play an important role and enhances the new pro-growth tax reform, we should consider making it permanent.  And in that case, we will ask those who benefit from the provision to consider what other tax benefits they would forego in favor of having this provision made a permanent part of the tax code.”

The hearing included testimony from more than 20 people and organizations, broken down into four panels. The fourth panel featured statements from Cal Myer, group vice president and chief operating officer of Ag Processing Inc., which is a member of the National Biodiesel Board; Michael McAdams, president of the Advanced Biofuels Association; and Edward Hubbard, general counsel of the Renewable Fuels Association.

In his testimony, Meyer highlighted several benefits of the biodiesel tax incentive, including job creation and economic growth. The biodiesel industry supports approximately 64,000 jobs he, said, along with $11.62 billion in economic impact and $2.54 billion in wages. The industry also adds value to other U.S. economic sectors, he said, including agriculture. In addition, the fuel is made from an increasingly diverse mix of resources, including recycled cooking oil and animal fat, which helps put waste materials to work. He said biodiesel offers many benefits petroleum cannot, including increased lubricity and cetane of diesel fuel. The fuel also improves air quality by reducing particulate matter, hydrocarbon emissions and lifecycle greenhouse gases (GHG). Meyer also noted that biodiesel helps increase U.S. energy security.  

Meyer urged the committee to extend the biodiesel tax incentive through at least 2018, and to consider a “multi-year approach to biodiesel incentives that would drive new investment and establish market certainty for U.S. farmers, ranchers, and petroleum marketers, blenders and fuel retailers.

McAdams also called on the committee to extend tax incentives for biodiesel and renewable diesel. He offered testimony on behalf of the ABFA, National Association of Truckstop Operators, National Association of Convenience Stores, Petroleum Marketers Association of America, Society of Independent Gasoline Marketers of America, and the American Trucking Associations.

The biodiesel tax credit was originally established in 2004 and has been renewed several times. According to McAdams, the incentive was initially established to encourage the market to displace petroleum-based fuels with renewable substitutes. In conjunction with the Renewable Fuel Standard, McAdams said “the tax credit stimulates consumption of these fuels by reducing fuel prices for the millions of truck drivers that move two-thirds of the country’s freight. The credit therefore also serves to lower the price of all goods that are moved by truck.”

“The current blenders’ credit for biofuels incentivizes fuel marketers to invest in the blending infrastructure necessary to bring these fuels to market,” McAdams continued. “If extended, it would continue to do so, as there is ample room for growth.”

McAdams noted that that in examining other expiring tax incentives, the Ways and Means Committee has determined to phase them out rather than to abruptly terminate them. “While we believe the biodiesel and renewable diesel tax incentives should be made permanent, we understand that there may not be a consensus to do so,” he continued. “Handled responsibly, our coalition believes that a multi-year phase out of the tax incentive can achieve the same economic and environmental benefits that the $1.00 credit has achieved for more than a decade. We are eager to work with the Committee on identifying a responsible path forward in this respect. Although our coalition would support phasing out the credit over a period of years, it is imperative that the credit be extended at $1.00 per gallon for 2018. Given that Congress has frequently extended the credit retroactively, including most recently in February 2018 for all of 2017, market participants have come to reasonably rely on the credit being retroactively extended when undertaking business and investment decisions. This includes decisions made already in 2018. To protect these market participants from unanticipated changes in policy, the existing provisions should be extended in full for at least this year.”

According to McAdams, the coalition he represents is prepared to work with Congress to develop an appropriate phasedown of the biodiesel tax incentives. However, he stressed that any such phasedown must be enacted well in advance in order to allow market participants to include the phasedown in their planning and made necessary adjustments. “This would provide a smooth transition period and reduce negative impacts, particularly on the smaller producers and distributors most likely to be affected,” he said.

In his testimony, Hubbard discussed the need to extend several tax credits that benefit cellulosic biofuel production and infrastructure development.

He called on congress to extend second-generation ethanol incentives in order to provide certainty and support growth and innovation in the biofuel industry. Over the past three years, he said, the biofuels industry has begun to produce cellulosic fuels at commercial scale. He attributed much of the success to “bolt-on” technologies that are allowing corn fiber to be converted into fuel.

“If we hope to continue this technological growth and innovation in the U.S. cellulosic and second-generation ethanol industry, it is critical that we have a steady and reliable policy undergirding the industry,” Hubbard said. “Like all other nascent industries, there must be policies that show the government’s commitment to the industry, which have been key for these companies to secure financing and investment. In addition, there must be time afforded to these new industries to allow them to develop and improve production efficiencies and lower production costs to the point that their fuel is competitive with other comparable fuels.”

According to Hubbard, the two key tax incentives supporting the growth of cellulosic ethanol are the second-generation production tax credit and the accelerated depreciation allowance for second-generation biomass plant property.

“While these two incentives were only first enacted in 2008, and were designed to have a multiyear authorization, they have been treated as an extender since originally expiring at the end of 2013,” Hubbard said. Over the past few years, the credits have been extended in one- or two-year increments, with Congress promising that reform of the credits would be included as part of a comprehensive tax reform package. Those promises, however, have failed.

“As part of the most recent tax reform effort to pass Congress, while other energy incentives were addressed for oil and gas, and even wind and solar, once again there was no effort made to reform or otherwise extend the incentives for biofuel, including the above incentives,” Hubbard said. “It was instead reported that there was a deal among Congressional negotiators on the tax bill that these provisions would be addressed as part of an upcoming spending bill.

While the credits were extended in February, the extension was retroactive, though only 2017. “By failing to extend the credit for 2018, Congress is assuring that these incentives are no longer effective in encouraging industry investment, and are not expected to be available to help early movers survive in the marketplace while economies of scale are being realized,” Hubbard continued.

“In an effort to provide greater certainty for the industry, we have previously called for the Second-Generation PTC to be modified to allow for a set, 10-year period of credit eligibility, such as the tax incentive offered to renewable electricity Section 45,” Hubbard said. “In addition, we recommended that the eligibility period for the PTC should be triggered upon the beginning of construction, as found in Section 45, as well. Finally, the accelerated depreciation allowance should be extended similarly for multiple years. By doing so, the tax code could provide more certainty to investors that the credit will be around for a set period of time, and that the credit will not be subject to the annual tax extension exercise that normally occurs at every year end in Congress. However, anything short of that, we recommend that the tax incentives be extended no less than one year prospectively, so that they maintain their prospective benefit for the industry.”

Hubbard also asked the committee to modify and extend incentives for retail infrastructure in order to expand market access. To date, he said the alternative vehicle refueling property credit has not been very effective at pushing infrastructure improvements for ethanol. “We believe the reason that it has been ineffective is due to the fact that it has not kept up with the growth trends in the retail fueling business,” he said. “Moreover, it is insufficiently designed to accommodate the technological growth that is occurring at today fueling stations, which have increasingly been moving toward blender-style pumps which allow for blending to occur at different levels at the pump.”

According to Hubbard, the effectiveness of the credit could be improved by expanding eligibility to ethanol blends other than E85 and by allowing the credit to be used for dual use property, which is retail infrastructure that delivers both conventional and renewable/alternative fuel.

Additional information on the hearing, including full copies of written testimony, is available on the House Ways and Means Committee website