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Corn+Soybean Digest

Biofuels Benched

Biofuels struck out when the Energy Bill failed by just two votes on the Senate floor last November. That means biofuels legislation has one more chance at bat in the 108th Congress before the game is called. And if the legislation doesn't pass, it could become a double-header do over during the 109th Congress next year.

“I think we've got one more shot this year,” says Mark Palmer, American Soybean Association's (ASA) Washington representative. “We'd rather not have to begin the process anew next year.”

The bases are loaded. There are now three ways national biofuels legislation can become law — through passage of the Energy Bill, the Transportation Reauthorization Bill or the Corporate Tax Bill.

The Energy Bill, a mega bill that encompasses such far-flung topics as drilling for oil in the Arctic, pipeline safety, rules on uranium, carbon sequestration and biofuels, has been contentious. The Senate version, S.14, included a more aggressive Renewable Fuels Standard (RFS) than the House version. The Senate's schedule was adopted on the conference report, H.R. 6, after the House and Senate met to iron out their differences.

“The RFS would phase out the oxygenate requirement that causes a lot of MTBE (methyl tertiary-butyl ether) to be blended into gasoline and replace it with renewable fuels, ramping up to 5 billion gallons a year by 2012,” explains Joe Jobe, director of the National Biodiesel Board (NBB). “Most of that requirement would be met by blending ethanol into gasoline. However, it will also allow refiners to meet their credits by blending biodiesel into diesel fuel.”

The bill made it through conference committee for a vote on both floors last November where it passed the House, but failed to make the required 60 votes to end debate in the Senate — effectively killing the bill. The conference report was reintroduced and has passed the House again during “Energy Week” in June.

Palmer says the issue that's holding up the bill is MTBE — specifically whether manufacturers of MTBE should be exempt from lawsuits. The House bill says they should be. The Senate bill says they shouldn't.

The Volumetric Ethanol Excise Tax Credit (VEETC) is also part of the Energy Bill tax package. The tax credit is a revision of the ethanol excise tax credit that's in effect until 2007.

The excise tax on a gallon of gasoline is 18.4¢. The tax is 13.2¢ for a gallon blended with 10% ethanol. Under current law, the Highway Trust Fund, which pays for the building and repair of U.S. roadways, receives 5.2¢ less because of that exemption, plus a 2.5¢ deficit reduction transfer. The VEETC will rewrite the law to take the 5.2¢ out of the general fund instead of the Highway Trust Fund, which has long been a thorny issue with lawmakers. Both the House and Senate versions of the bill contain the VEETC provision.

However, the Senate version goes one step further and extends a similar tax credit to biodiesel. The federal excise tax on diesel fuel is 24.4¢/gal. The biodiesel excise tax incentive would provide a 1¢/gal. tax credit for each percentage point of biodiesel blended into petroleum diesel.

“The biodiesel industry is in a little different situation than the ethanol industry,” says ASA's Palmer. “Obviously we support the Renewable Fuels Standard, but biodiesel needs VEETC to really participate in the RFS. Biodiesel doesn't have a tax incentive yet. Ethanol does. The ethanol industry is trying to get VEETC passed and biodiesel is along for the ride — that's a huge advantage for us.”

The Transportation Reauthorization Bill, another mega bill, is stalled in a contentious conference committee process. It also includes some of the Energy Bill tax provisions.

“Everybody's hedging their bets on which bill is really the ‘must-pass’ bill, so we're seeing the same provisions in several places,” says Samantha Slater, lobbyist for the National Corn Growers Association.

The Senate version of the Transportation Bill, S. 1072, includes the entire energy tax package — both the ethanol and biodiesel excise tax exemptions. The house version, H.R. 3783, includes only the ethanol exemption, VEETC, but doesn't address biodiesel.

“We're happy to have the VEETC provision in the bill, but we'd like to see the entire energy tax package included,” says Slater.

“The energy tax package is a tremendous piece of legislation,” says Bob Dinneen, Renewable Fuels Association president. “It provides flexibility to refiners to use ethanol at different blend levels, it restores highway trust fund monies, it could potentially create new incentives for the use of E85 (an 85% ethanol blend), it creates a new tax incentive for biodiesel and it would resolve a long-standing political issue.”

The Corporate Tax Bill, officially the “Foreign Sales Corporations/Extra Territorial Income (FSC-ETI) Bill,” has little to do with farming, but may turn out to be the pinch-hitter that gets biofuels legislation to home plate.

The VEETC provision has been tacked onto both the House and Senate versions of the Corporate Tax bill.

The Corporate Tax Bill's primary purpose is to change current corporate tax laws that were deemed illegal by the World Trade Organization (WTO). Until the bill is passed and signed into law, under a WTO settlement the European Union is allowed to place tariffs that increase monthly on various goods and services from the U.S.

“Unless we want to bankrupt a number of major corporations, the bill has to be passed — and sooner is much better than later,” says NBB's Jobe. “It would be pretty inexcusable for Congress not to pass the FSC-ETI bill because of partisan politics.”

The politics that are most likely to hold up the FSC-ETI bill have to do with tobacco buyout contracts in some Southern states, says Dinneen.

While razor-thin party margins and an election year slim the chances of legislation passing, Dinneen says there are some bright spots.

“The industry continues to grow even in the absence of federal energy legislation,” he says. “Two years ago there was not a single drop of ethanol being sold in California or New York. This year, we will sell nearly a billion gallons in California and 500 million gallons in New York. People aren't waiting around for the federal government to tell them to take MTBE out of gasoline.”

While ethanol is expanding at a good clip, the biodiesel industry is banking on a tax package to fuel a growth spurt.

“Getting the tax credit passed will really launch our industry to a new level,” says Jobe. “There are a number of investor groups who have made plans to build biodiesel plants and they're waiting to see what happens with VEETC.”

VEETC has a good chance of getting tacked onto another bill even if the Energy, Transportation or Corporate Tax Bills don't pass, Dinneen says. He adds that it's not considered a contentious provision. It's seen as a revenue-raising measure — a very good thing in an election year.

“We're cautiously optimistic about our chances. The bad news is that energy legislation hasn't passed. But the good news is we keep getting considered,” says ASA's Palmer. “We have Congress' attention. We have champions in the House and the Senate, Democrats and Republicans, northerners and southerners. We've got a very unique blend of geography and party affiliation. I think that bodes well for us.”


The bill is drafted.

The bill is referred to a standing committee.

The bill is placed on committee calendar or referred to subcommittee.

The subcommittee has a review and hearings.

The subcommittee meets to ‘mark up’ changes.

The subcommittee reports marked up bill to full committee.

The full committee votes on if the bill is to be referred to full chamber (House or Senate).

If referred to full chamber the bill is placed on the legislative calendar.

The full house or senate debates the bill.

The chamber votes.

If the bill passes it is referred to other chamber where it goes through the same process.

If bills differ significantly they are sent to conference committee to iron out the differences between the house and the senate versions.

The conference committee bill is sent for a vote in both houses.

Once passed by both houses it is sent to President (White House) to sign into law.

At any step along the way, the bill can be ‘killed’ simply by being held up and not allowed to progress to the next level.

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