BIODIESEL BACKGROUNDER

ASA Position

Tax Incentive – ASA supports H.R. 2238 and S. 1277, which provide a 3 year extension of the biodiesel tax incentive through 2014 and restructure it from a blenders credit to a production tax credit. ASA urges Representatives and Senators to cosponsor the biodiesel tax credit extension bills.

Bioenergy Program – ASA opposes rescissions in the FY2012 Agriculture Appropriations bill to the mandatory Bioenergy Program funding provided under the 2008 Farm Bill.

Background

Tax Incentive – The biodiesel tax incentive has encouraged significant investment to expand the domestic biodiesel industry and help it become price competitive with petroleum diesel. Extension of the tax incentive is critical to the industry’s existence and growth. At this stage, biodiesel requires the tax incentive to be cost competitive with the more mature and entrenched petroleum industry. Biodiesel is the only advanced biofuel that is currently commercially available in the U.S. and it provides significant economic, energy security, environmental and health benefits. The tax credit is currently schedule to expire on December 31, 2011.

An economic impact study conducted for the industry found that the expiration of the tax credit and the accompanying 42 percent drop in production for 2010 resulted in the loss of nearly 8,900 jobs, a reduction in real GDP of $879 million, and a drop in household income of $485 million.

The study predicts the industry will support more than 31,000 jobs in 2011, generate income of nearly $1.7 billion to be circulated throughout the economy, and create more than $3 billion in GDP. Under projected expansion by 2015, that economic impact would grow even further to supporting more than 74,000 jobs, $4 billion in income, and some $7.3 billion in GDP.

Along with jobs and economic growth, the biodiesel industry also is generating significant tax revenues. This year, the industry is expected to generate an estimated $345 million in federal tax revenue and $283 million in state and local tax revenues. By 2015, that would grow to $873 million in federal revenues and $718 million for state and local governments.

Rep. Aaron Schock (R-IL) and Rep. Collin Peterson (D-MN) have introduced H.R. 2238 in the House and Sen. Maria Cantwell (D-WA) and Sen. Chuck Grassley (R-IA) have introduced S. 1277 in the Senate. Co-sponsorship and support for these bills is important to ensure that biodiesel is in position to be included if there is a tax extenders package in 2011.

The legislation also includes a restructuring of the tax credit from a blenders credit to a production tax credit. This change will further support domestic biodiesel production, improve administration of the incentive, eliminate potential abuses and improve tax compliance.

Bioenergy Program – ASA was instrumental in the inclusion of this program under Section 9005 of the 2008 Farm Bill. The purpose of the program is to provide payments to eligible producers to support production of advanced biofuels, including biodiesel. Under the Farm Bill statute, $105 million is available for FY2012, however, the House Agriculture Appropriations bill has limited the program to $55 million, thus rescinding $50 million from the program.