biodiesel facility
BIODIESEL: Congress is being urged to fix a tax loophole that has let foreign producers of biodiesel take advantage of the U.S. blenders tax credit.

Tackling a tax loophole that helps our competitors

Iowa biodiesel supporters climb Capitol Hill to advocate for reform of tax incentive.

Last week members of the Iowa Renewable Fuels Association (IRFA) and Iowa Biodiesel Board (IBB) joined forces on Capitol Hill to urge Iowa’s congressional delegation to keep fighting for a reformed biodiesel tax incentive. The changes would save U.S. taxpayers money while encouraging domestic jobs and energy security.

Bills have been introduced in both the U.S. House and Senate to reinstate the biodiesel tax credit, and reform it from a blenders credit to a producers credit. This change would fix a loophole as foreign biodiesel producers have been able to take advantage of the credit at the expense of U.S. taxpayers by merely blending foreign-produced biodiesel with petroleum in the United States.

“Biodiesel use has skyrocketed in the U.S. since the tax credit was first implemented, from 100 million gallons in 2005 to nearly 2.9 billion gallons at the end of last year,” says Monte Shaw, IRFA executive director. “Unfortunately, Congress allowed this successful tax incentive to expire at the end of 2016. Last week when we went to Washington, we thanked Iowa’s congressional delegation for their strong support in the effort to get the tax credit reinstated, and to reform it in order to boost domestic energy and quality jobs.”

The Iowa biodiesel supporters also asked Iowa’s four congressmen and two U.S. senators to stand strong on the Renewable Fuel Standard and oppose any efforts to undermine the RFS.

Biodiesel tax incentive, RFS make sense
“Both the biodiesel tax incentive and RFS are examples of successful bipartisan policies that make sense, and we’re grateful to our state’s congressional delegation for their leadership on them,” says Grant Kimberley, executive director of IBB. “Extending and reforming the tax credit will help realign it to work as Congress intended, supporting American jobs and products, while reducing reliance on other countries for our vital fuel supply.”

Reforming the biodiesel tax credit — by changing it to a producers credit — would support nearly 82,000 U.S. jobs and $14.7 billion in economic activity. That estimate comes from LMC International, a business consulting and economic forecasting firm.

U.S. Sens. Chuck Grassley, R-Iowa, and Maria Cantwell, D-Wash., and 14 other senators in late April introduced bipartisan legislation to reform the biodiesel tax credit and extend the new policy for three years. The bill, the American Renewable Fuel and Job Creation Act of 2017, reforms the incentive by transferring the $1-per-gallon credit from blenders to producers of biodiesel to ensure the tax credit encourages U.S. production and taxpayers aren’t subsidizing imported fuel. The bill provides for an additional 10-cents-per-gallon credit for small biodiesel producers in the United States.

Federal tax policy providing the biodiesel tax credit created a disparity in which U.S. companies have lost market share and jobs to subsidized foreign production. “The tax incentive, as this part of the federal law is structured, is such that biodiesel produced outside the U.S. is also eligible for the tax credit,” says Grassley. “This was not the intent of the original legislation.”

Serious disadvantage for U.S. biodiesel
This loophole has put American biodiesel producers at a serious competitive disadvantage. Millions of gallons of foreign-made biodiesel from countries like Argentina and Indonesia are subsidized by both the home country and by the U.S. blenders tax credit. This double-subsidy for foreign-produced biodiesel means it costs less per gallon than American biodiesel, in some cases pushing our homegrown Iowa biodiesel out of the market, says Kimberley.

The effect is significant. In 2015, blenders in the U.S. who bought foreign-made biodiesel received $600 million in tax credits. “This isn’t simply harmful to biodiesel; it harms agriculture, reverberating into our soybean meal export market, which is vital to the economy,” Kimberley adds. “In countries like Argentina, the double-dipping of subsidies makes their soybean crushing business more profitable, putting our meal at an unfair global advantage.”

Taxpayer dollars are usually directed to incentivizing U.S. jobs and production. The intention of the tax credit remains pure: to level the playing field for biodiesel and encourage this renewable fuel to diversify our nation’s fuel supply. “However, closing this loophole is long overdue,” notes Kimberley. “We must realign the biodiesel tax credit incentive with Congress’ intent to spur job creation and clean energy production here at home.”

Legislation needed to close loophole
Kimberley says, “We thank Sen. Grassley for working tirelessly to fix this. Working across the aisle with Sen. Maria Cantwell of Washington and a bipartisan group of legislators, Sen. Grassley has introduced Senate file S. 944, the American Renewable Fuel and Job Creation Act of 2017. This bill would convert the blenders biodiesel tax credit to a production credit. Doing so would create business for U.S. biodiesel producers and support U.S. workers.”

As the No. 1 biodiesel-producing state, Iowa has a lot to gain by focusing the tax credit on U.S. biodiesel producers, not blenders. In 2016, Iowa produced 305 million gallons of biodiesel. An ABF Economics study shows the increase in economic activity generated by biodiesel supported about 3,800 full-time equivalent jobs, added $480 million to Iowa’s gross domestic product and added $300 million of household income. In all, the nation’s biodiesel industry supports more than 64,000 jobs across the United States, and has biodiesel production plants in nearly every state.

U.S. producers need level playing field
If Grassley and co-sponsors of the new legislation are successful and the tax credit is changed to benefit U.S. biodiesel producers, not blenders, “our state’s economy will grow and taxpayers nationwide will save tens of millions of dollars each year,” says Kimberley. “In today’s challenging fiscal environment, we can’t afford to leave these kinds of things on the table.”

He points out that the reform would not block imported biodiesel from entering the U.S. market, but it would make imported biodiesel ineligible for the federal tax incentive.

 

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