IRS Ruling Could Leave Promising Biodiesel Industry on a 'Bridge to Nowhere'

JEFFERSON CITY, Mo., PRNewswire-USNewswire/ -- When he first decided to open a biodiesel plant, Delaware farmer Marty Ross knew that it wouldn't be easy. But he believed in biodiesel's potential for both providing energy security and adding value to the Delaware soybean crop. Seven years later, his Clayton, Del. plant is in production, and beginning to enjoy some hard-earned success. The plant has the capacity to produce 5.5 million gallons of biodiesel a year, and Ross has plans to expand that as demand increases.

However, a dark cloud now hangs over his business and threatens to dampen the benefits that the biodiesel industry brings to all Americans.

"There's no question that the government has encouraged our plant and others like us through grant programs and a federal tax incentive for biodiesel," said Ross, president and founder of Mid-Atlantic Biodiesel. "Now, we feel like we are about to be stranded on a bridge to nowhere."

Ross and many others in the biodiesel industry are under threat by some large integrated oil companies, who have aggressively pursued access to a federal tax incentive that was designed to stimulate an emerging technology. Special interests have successfully lobbied the U.S. Department of Treasury to exploit a loophole in a renewable diesel tax credit law for their own benefit.

The provision in question allows fuel made from a specific process called thermal de-polymerization (TDP) to qualify for the same dollar-per-gallon incentive that was created for biodiesel produced from agricultural resources. The TDP process is a new technology to turn hazardous wastes, plastics, and food wastes like poultry offal and carcasses into a boiler fuel. Congress never had a chance to debate the provision, but it passed, along with the biodiesel tax incentive extension, in the 2005 Energy Policy Act.

Now the Internal Revenue Service (IRS) has ruled in the oil companies' favor to expand the TDP definition to include the conventional petroleum refining process. Those companies want to add raw vegetable oils and fats at their existing oil refineries and qualify for the credit.

"This is bad energy policy, bad agricultural policy and bad fiscal policy," Jobe said. "If Congress lets this stand, our government will be handing over U.S. taxpayer money to some of the richest companies in the world, and it will not provide many of the benefits that the biodiesel tax incentive has given back to America."

The National Biodiesel Board, on behalf of the biodiesel industry, strongly opposes this policy for reasons that include:

-- Allowing large integrated refineries to claim a subsidy for dumping raw domestic or imported vegetable oil into the refining process will not add any fuel refining capacity to America's energy infrastructure.

-- This will hamper energy security efforts and will simply subsidize oil companies for their existing capacity.By contrast, biodiesel plants coming on line since the tax incentive took effect have added fuel capacity numbering in the hundreds of millions of gallons.

-- The oil companies could put a stranglehold on materials used to make biodiesel, stunting the growth of the biodiesel industry, and leaving companies like Mid-Atlantic Biodiesel on a "bridge to nowhere."

-- It will be an unanticipated drain on the U.S. Treasury.

-- It sends dangerous signals to other countries to engage in unsustainable agriculture practices to quickly meet the rising demand for raw vegetable oil.

-- This process will not add new American jobs in a significant way.The biodiesel industry, however, is expected to add 40,000 jobs to the U.S. economy.

-- The resulting fuel does not contain any oxygen, unlike cleaner-burning biodiesel, and does not offer the same benefits of biodiesel in terms of being non-toxic, biodegradable, increasing fuel lubricity, and significantly reducing harmful particulate matter emissions from diesel engines.

-- Rather than helping our country achieve energy independence, this rule goes in the exact opposite direction ... discouraging development of the renewable fuels industry.

In 2004, when Congress passed the original biodiesel tax incentive, the U.S. biodiesel industry had 22 plants with a capacity to produce 157 million gallons of fuel. The tax incentive gave the industry confidence to invest. Today, the industry has added significant new energy-producing capabilities. Biodiesel producers have grown more than 4-fold, with 105 plants capable of producing 864 million gallons of domestic biodiesel from coast to coast. That means the biodiesel industry has the capacity to displace 864 million gallons of petroleum produced from foreign oil. Another 1.7 billion gallons of capacity is reported to be under construction. To put that into perspective, the U.S. currently refines 1.8 billion gallons of diesel from Iraqi crude oil.

A recent economic study found that the economic stimulus created by biodiesel plants more than pays for the biodiesel tax incentive. That's something so-called "renewable diesel" doesn't accomplish by feeding off of the tax incentive.

"This country has not built a new petroleum refinery in more than 30 years, and large oil companies use that to defend their prices and profits," Jobe said. "Meanwhile, the biodiesel industry has been investing in the nation's refining capacity with every plant that goes up. If oil companies want to subsidize their existing petroleum refineries for this product that has some vegetable oil in it, then the merits of that process and fuel should be evaluated and debated before Congress."

Jobe pointed out that the petroleum industry is not monolithic and should not be painted with one broad brush. "We are talking about just a few companies who are engaged in this activity with respect to 'renewable diesel.' The petroleum industry as a whole has worked in partnership with the biodiesel industry. Many segments of the petroleum industry, especially on the distribution side, have embraced biodiesel and supported its growth," he said.

Public opinion research shows 82% of Americans support a federal tax incentive for biodiesel. They view energy security as the number one reason to support the growth of biodiesel, but also cite health, environmental and economic benefits.

"I strongly doubt the American public would feel the same sentiment for another oil company subsidy," said Mid-Atlantic Biodiesel's Marty Ross.