ASA Position: ASA supports national policy that includes the volumetric excise tax credit (VEETC) for biodiesel and ethanol. The tax credit for biodiesel should be $1.00 per gallon for biodiesel made from virgin oils and animal fats and 50-cents for biodiesel made from recycled oils. ASA urges the biodiesel tax credit be included in any tax, energy, or transportation legislation Congress passes this year, including the Energy, Transportation, and FSC/ETI bills. ASA also supports Commodity Credit Corporation (CCC) Bioenergy Program providing fair and equitable level of support for soy- based biodiesel.

Background: For over a decade, soybean growers have invested in the research and development of a biodiesel industry. Biodiesel offers the best potential for displacing large quantities of surplus soybean oil that can result in low soybean prices. Just 100 million gallons of biodiesel will displace 750 million pounds of soybean oil.

Biodiesel has matured into a viable fuel having completed EPA’s Tier I and II health effects testing and established an ASTM standard. The industry has grown from 100,000 gallons in 2000 to over 20 million gallons in 2003 with satisfied customers in almost every state.

However, biodiesel is not competitive in most markets without some type of cost assistance. Over the last several years, USDA has supported the biodiesel and ethanol industries with a program providing funds for fuel providers to purchase additional commodities for the production of biodiesel and ethanol. This program has been successful in reducing the cost of biodiesel in certain instances, but it is primarily available for new production only. The Commodity Credit Corporation (CCC) Bioenergy Program was extended in the 2002 Farm Bill, but is slated to expire in 2006. The program has been targeted for reductions by the Administration, although Congress has continued funding the program at its $150 million authorization level.

In order for the biodiesel industry to continue growing, a tax incentive is needed to help make the fuel competitive in the marketplace. Senators Grassley (R-IA) and Blanche Lincoln (D-AR) have worked bi-partisanly to included biodiesel tax incentives in three legislative vehicles, the comprehensive energy package (H.R. 6) which is stalled in conference, in the major transportation bill reauthorization package (S. 1072) which passed the Senate in February, and in a scaled down energy bill recently approved by the Senate (S. 2095), as well as the FSC/ETI legislation (S. 1637) awaiting conference action. The Senate bill included the energy tax package with the biodiesel tax incentive as crafted in the energy bill. Once the bill moves to conference, ASA will continue fighting to retain the tax incentive.

The provisions included in these bills are very similar and would provide an excise tax credit for every gallon of biodiesel blended with diesel. The legislation provides a $1.00 credit for agribiodiesel (biodiesel made from virgin oils and animal fats) and a 50- cent credit for biodiesel made from non-agribiodiesel (recycled oils). Representative Kenny Hulshof (R-MO) introduced legislation in the House of Representatives that mirrors the Senate provisions for both biodiesel and ethanol.

Since it appears unlikely the Senate will pass the conference report for H.R. 6 or the new version of the energy bill (S. 2095), the FSC/ETI legislation now awaiting conference action is the best legislative vehicle for the biodiesel tax incentive.