Grassley Introduces Bipartisan Bill to Simplify, Extend Biodiesel Tax Incentive

WASHINGTON – Sen. Chuck Grassley of Iowa today introduced bipartisan legislation to simplify and extend the tax incentive for domestic biodiesel production.  The Biodiesel Tax Incentive Reform and Extension Act of 2009 would provide predictability to investors and producers so the United States can continue moving forward to displace imported fossil fuels with low carbon, renewable biodiesel.

“America is trying to kick its addiction to foreign oil, and biodiesel is part of the cure,” Grassley said.  “The more we can encourage domestic production and meet demand, the better off we’ll be economically, environmentally, and geopolitically.  This legislation simplifies the tax credit for producers.  It also gives investors predictability so they’ll be more likely to put their money into biodiesel production.”   

Grassley, a Republican and ranking member of the Finance Committee, with jurisdiction over tax policy, authored the original biodiesel tax incentive via legislation enacted when he was committee chairman in 2004.  Today’s legislation, introduced with Sen. Maria Cantwell, a Democrat from Washington, builds on the existing tax incentive to encourage the production and use of biodiesel. 

Grassley said U.S. production of biodiesel has increased significantly in recent years, and the legislation will encourage that progress.  According to the National Biodiesel Board, there currently are 176 plants in operation with the capacity to produce more than 2.61 billion gallons of biodiesel and 39 new plants under construction or expansion.  In 2008, this industry supported 51,893 jobs in the United States.  Unfortunately, limited access to capital, uncertainty surrounding the federal commitment to biodiesel and the current state of the economy threaten to undermine the progress the U.S. biodiesel industry has made to build the production capacity and infrastructure needed to displace petroleum diesel fuel with renewable, low-carbon biodiesel. Right now, less than one-third of the industry’s facilities are producing fuel. 

The current law tax credit, which is a tax credit for blending biodiesel with petroleum diesel fuel, will expire at the end of this year.  Today’s legislation would reform the credit and extend it for five years.  

Specifically, the Biodiesel Tax Incentive Reform and Extension Act:

• Would eliminate potential abuses and simplify administration of the incentive for both taxpayers and the Internal Revenue Service (IRS).  The bill changes the incentive from a blender credit to a production tax credit so that incentives are given for building the domestic production industry.   The change would focus the benefits of the credit on the production capacity of these cleaner, greener fuels rather than on the activity of just blending them with petroleum diesel. By focusing on the production of the 100 percent bio-based fuel, thisbill would shut down any remaining opportunity for the abuse known as “splash and dash,” in which oil companies add a few drops of biodiesel to their petroleum diesel just to qualify for the tax credit.   

• Provide the $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 that define qualified fuels under current law.

• For small producers, those with an annual production capacity of less than 60 million gallons, the credit increases from $1 to $1.10 for the first 15 million gallons of biodiesel produced.

• Simplify the definition of “biodiesel” to encourage production from any biomass-based feedstock or recycled oils and fats. 

• Simplify the coordination between the income tax credit and the excise tax liability to tighten compliance and reduce administrative burdens on taxpayers.

• Extend this tax credit for five years, giving needed financial predictability so that more facilities can be brought online in the United States.

            Grassley has long been one of the most outspoken advocates in Congress for developing domestically produced alternative, renewable energy such as ethanol and biodiesel.

            In 1997, Grassley led the fight in Washington to secure the ethanol program through 2007 by extending for ten years the ethanol producer tax credit that goes to blenders.  In subsequent years he championed numerous legislative initiatives to further encourage the development and use of ethanol.  As chairman of the Senate Finance Committee, he authored the tax title of the Energy Policy Act of 2005, which included another extension of the excise tax credit for blenders, and extension and expansion of the small ethanol producers tax credit and the infrastructure tax credit.  In addition, Grassley was a leading proponent of the Renewable Fuels Standard that is in the 2005 energy bill.  This standard requires the use of 7.5 billion gallons annually of ethanol or biodiesel by 2013.  Grassley also authored the Wind Energy Incentives Act of 1993, which established the first-ever wind energy production tax credit.

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