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Corn+Soybean Digest

Future's Bright For Biofuels

The push to get biofuels legislation enacted via the energy bill has been moving with glacial speed. Farmers have planted five crops and harvested four since some form of this energy bill has been on the to-do list of the U.S. Congress. However, the bill has finally made it through both the House and the Senate and awaits the President's signature. In fact, the provisions that Congress has spent years hammering out may be law by the time you read this.

Here are the energy bill provisions that affect biodiesel and ethanol:

Extension of Volumetric Ethanol Excise Tax Credit (VEETC)

VEETC was finally passed last year as part of the corporate tax bill, otherwise known as the JOBS bill. The bill was an extension of the current ethanol tax credit, which is now in effect until the end of 2010. The ethanol tax credit was amended to support the tax credit from the general fund, not the highway trust fund, and it allowed biodiesel to receive a similar credit for the first time.

The tax incentive gives biodiesel producers a tax break of $1/gal. for agri-biodiesel — defined by a list of 11 virgin vegetable oils, including soybean and corn oils — and 50¢/gal. for other biodiesel, usually made from used vegetable oils. It equals 1¢/gal. or ½¢/gal, respectively, for each percentage point of biodiesel blended with petroleum fuels.

But, as it was passed in the JOBS bill, VEETC only provided a short-term provision for biodiesel. The ethanol provision concludes at the end of 2010, while biodiesel's provision was scheduled to expire at the end of next year.

“Last year at this time we did not have a tax incentive, so to go back to Congress and ask for an extension and have it pass right out of the gate is a remarkable achievement,” says Mark Palmer, Washington, D.C. representative for the American Soybean Association (ASA). “This is just going to be the beginning for this industry.”

The biodiesel VEETC credit is now extended through Dec. 31, 2008.

Renewable Fuels Standard (RFS)

This standard phases out the requirement under the Clean Air Act that an oxygenate — usually ethanol or MTBE — be blended into gasoline in non-attainment areas.

Since MTBE (methyl tertiary butyl ether) has been banned in many states due to groundwater contamination, it seems like it would be a bad idea to give up the oxygenate requirement. However, under the RFS, petroleum refiners and blenders will cede to a ramp up in the total amount of renewable fuels — either ethanol or biodiesel — that they are required to blend each year. The refiners gain more flexibility on when and where they blend renewable fuels and the renewable fuels industry secures a guaranteed market for a minimum number of gallons per year.

Originally, the House version of the bill included an RFS of 5 billion gallons by the year 2012, while the Senate version was for 8 billion gallons in the same time frame. The bill that passed out of conference committee pegged the RFS at 7.5 billion gallons by 2012.

“The passage of this energy bill has been a long time coming ,” says Leon Corzine, farmer and president of the National Corn Grower's Association. “It's taken the heart and soul of a lot of farmers to make it happen, but the political will of the House and the Senate has been there. They see that agriculture is the solution to moving our country away from dependence on foreign oil and it gives us the assurance of a growing market for renewables, which continues to help farmers invest in the best rural development opportunity we have ever seen.”

Although it's aimed primarily at ethanol, the RFS has also turned out to be a boon for biodiesel as well, says ASA's Palmer.

“We are fortunate, because the tax code is going to be the driver of the market,” says Palmer. “Congress has embraced a national marketplace for renewable fuels. The concept of regionalism is gone and that's going to be great for renewable fuels and that includes biodiesel.”

The bill also calls for fixes to the credit-trading program available to refiners, says Samantha Slater, Washington, D.C. representative for the National Corn Growers Association.

Refiners earn credits when they blend more ethanol than they're required to under the RFS, but they must use those credits in the year they are accrued. The flexibility provided by the credit trading program is crucial to the success of the RFS and ensures the benefits of renewable fuels are enjoyed nationwide, she says.

“This preserves the integrity of the RFS program, while not taking away any flexibility from the refiners and blenders,” she says.

A sticking point contained within previous energy bills was the MTBE liability protection issue, says NCGA's Slater. Previous House bills included liability protection for MTBE, while prior Senate bills afforded MTBE no such protection. MTBE liability issues were stricken from the bill and may be one reason the bill moved more quickly this time, she notes.

Other Provisions

The small ethanol producer credit was modified and enhanced to create a new small agri-biodiesel producer credit. The capacity for small ethanol producers increases from 30 million to 60 million gallons. And the bill creates a 10¢/gal. credit, for up to 15 million gallons of biodiesel, for every small agri-biodiesel producer with an annual capacity below the 60 million gallon cap. That provision will be effective through 2008.

There are also credits for business or individuals who install an alternative fuel refueling site. The provision permits taxpayers a 30% credit for the cost of installing clean-fuel vehicle refueling property to be used in a trade or business of the taxpayer, or to be installed at the taxpayer's principal residence.

Clean fuels are defined as any fuel that is at least 85% by volume of ethanol, natural gas, compressed or liquefied natural gas, liquefied petroleum gas, hydrogen or diesel fuel containing a minimum of 20% biodiesel. The provision is in effect until Jan. 1, 2010.

So while you could recoup 30% of the cost to install an E85 pump or a B20 pump on your farm, the bill is primarily to entice more gas stations to install them, says Palmer.

There will be new issues that arise and new legislation battles to fight, but biofuels is off to a solid start, he says. “We've laid a good foundation, and we've just got to continue building the house.”

Lower Gas Prices?

Because energy prices have been so high, the pressure to pass the energy bill this year has been enormous, says Samantha Slater, Washington, D.C. representative for the National Corn Growers Association.

“Oil is $60/barrel, gasoline is $2.20/gal. and natural gas is close to $7/MMbtu — that has not happened in the last four years,” she says.

“Obviously, passing the energy bill is not a silver bullet,” Slater says. “It won't break down oil prices or gasoline prices the next day, or even the next year, but for every year we don't have this, that's another 5-10 years it will take for prices to come down. If we had passed this in 2001, prices would be on their way down by now.”

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