ENERGY POLICY:

Delay in tax extenders could hinder investment in biofuels, energy sector

At a time when Congress is considering spending billions of dollars on a new jobs bill, a Senate delay to extend tax credits that expire at the end of the year may put more jobs in the biofuels and energy sector in jeopardy.

The Senate is fully occupied with health care reform and must squeeze in consideration of the 2010 Defense appropriations bill and a continuing resolution by Christmas, leaving no time for anything else before the holiday recess.

"The tax extenders package will likely not be considered until after the New Year," said a spokeswoman for Senate Majority Leader Harry Reid (D-Nev.).

That means tax credits for biofuels, research and development and heavy-duty hybrid trucks may expire in two weeks, creating investment uncertainty and possible job loss in those sectors.

"Everyday there is an impact," said Bartlett Cleland, senior director of policy at TechAmerica, an association for the technology industry who is lobbying for the extension of the research and development credit.

"Any company that doesn't end in the calendar year, if they end in October let's say, they are already not being able to take advantage of the credit ... they can't depend on the revenue," he said. Cleland said many companies developing new energy technology take advantage of this credit, which gives a company a tax break for labor and equipment costs.

TechAmerica estimates that more than 100,000 jobs and billions of dollars in economic activity and treasury revenue projected for 2010 would be at risk if the research and development tax credit expires.

A lapse in a biodiesel blenders tax credit would grind domestic biodiesel production to a halt come Jan. 1, according to the biodiesel industry.

"If the tax credit is not included in the extenders package and it's not approved by the end of the year, it's really a significant blow to an already troubled industry," said John Plaza, president and CEO of Seattle-based biodiesel producer Imperium Renewables Inc.

The House already passed what has become an annual tax extenders package last week, extending three dozen tax incentives for another year at a cost of $31 billion. The bill passed largely along party lines as Republicans protested the use of higher taxes on hedgefunds, private-equity firms that go public and offshore holdings to pay for the package (E&E Daily Dec. 10).

The offsets are likely to be another hotbed of contention in the Senate as well.

The House bill includes the extension of an alternative vehicle credit for "heavy hybrids" and a $1-per-gallon production tax credit for biodiesel, a $1-per-gallon tax credit for diesel from biomass and a 10-cents-per-gallon small agri-biodiesel producer tax credit. Tax incentives for research and development, brownfield site remediation, mining safety, deferral of sales tax on electric transmission property and a suspension of rules on depletion for marginal oil and gas wells are also in the bill.

Retroactive credit

This would not be the first time there has been a delay in renewing the tax credits that expire annually. In previous instances, Congress has made the bill retroactive to cover the lapse in the credits.

Genevieve Cullen, vice president of the Electric Drive Transportation Association, said if it takes the Senate a few weeks to pass the tax extenders bill it won't affect the heavy-duty hybrid industry that much.

"As long as they fix the tax extenders before the next filing season no one has actually lost the benefit of it," Cullen said. The Electric Drive Transportation Association is pushing for not only the one year extension of the heavy hybrid tax credit but would like to see a five-year extension and doubling of the credit currently available, as outlined in a bill, S.2854, introduced by Sens. Herb Kohl (D-Wis.) and Orrin Hatch (R-Utah) last week.

The credit is very important for heavy-duty hybrid trucks, which includes vehicles such as delivery trucks, utility trucks and large garbage trucks that drive in a lot of stop-and-go traffic, according to Therese Langer, director of the Transportation Program at the American Council for an Energy-Efficient Economy.

"That industry is really just getting going," Langer said. "But now we are in a critical period for the credit. It is necessary because the costs continue to be quite high for these vehicles."

Once the economies of scale kick in "the hybridization of this truck is a very economical proposition," Langer added.

Biodiesel producers are worried a lapse in the blenders tax credit would serve a crushing blow to the industry and action to retroactively implement the credit would do little to reverse damage caused by letting it lapse.

"Unfortunately, that would be 'too little too late,'" Sens. Blanche Lincoln (D-Ark.), Tom Carper (D-Del.) and Pat Roberts (R-Kan.) wrote in a letter to the Senate Finance Committee last week. "Biodiesel producers do not have the means to speculate on production, and purchasers have indicated an unwillingness to buy absent a direct mandate or an active tax credit."

Imperium's Plaza added: "If the tax credit goes away, we're not going to give the consumer the benefit of that $1-per-gallon credit with the notion that it might later be reimbursed. We're not going to take that risk, and therefore, the consumer would be faced with a $1-per-gallon higher price, which will make them unlikely to buy it."

The credit, which was enacted in 2004 and extended in October 2008, provides a $1-per-gallon credit to diesel producers who blend traditional fuel with that made from renewable sources.

"We've struggled through two years of financial crisis with virtually no access to working capital and no mandates that we built our facilities based on," Plaza said. "And now, our only support that we currently enjoy will be allowed to expire. It's just one more really frustrating lack of awareness."

A lapse in the credit could mean total production shutdown for Imperium, Plaza said. And the National Biodiesel Board has estimated the industry would be forced to terminate 23,000 jobs if the credit lapses and companies shutter their production facilities.

"This is going to be the toughest blow yet," said Michael Frohlich, a spokesman for the National Biodiesel Board.

'No excuse for inaction'

As in previous years, industry supporters on Capitol Hill are upset with the inability to move the tax credits on time.

The industry is currently operating at about 15 percent capacity, according to Sen. Chuck Grassley (R-Iowa), who spoke yesterday on the Senate floor in support of a credit for the industry.

"The tax credit is essential in maintaining the competitiveness of this clean-burning, domestically produced green fuel," said Grassley, ranking member of the Senate Finance Committee. "Without the tax credit, petroleum marketers will be unwilling to purchase the more expensive biodiesel, and demand will vanish. ... There's no excuse for inaction on this extension."

Sens. John Cornyn (R-Texas) and Ron Wyden (D-Ore.) have also pressured Finance Chairman Max Baucus (D-Mont.) and Grassley to extend the credit in the past month.

"The severe downturn in the U.S. economy, lack of credit for working capital and the slow pace of implementation of the renewable fuel standard has already crippled the biodiesel industry," Cornyn wrote in his letter. "We should not put this industry in further economic peril and risk losing the momentum necessary to develop the next generation of fuels that will help reduce our dependency on foreign energy."

Grassley and Sen. Maria Cantwell (D-Wash.) introduced a bill (S. 1589) this summer to extend the credit to 2014 and modify it to eliminate potential abuses and simplify its administration (E&E Daily, Aug. 7).

The measure would change the credit from a blender credit to a production credit to build incentives for development of a domestic production industry. The move would end a controversial action known as "splash and dash," where oil companies add a few drops of biodiesel to petroleum diesel to make it qualify for the credit.

It would also change the definition of biodiesel to include any biomass-based feedstock or recycled oils and fats. And it would increase the tax credit for small producers who generate fewer than 60 million gallons a year by 10 cents for the first 15 million gallons of production.

Reps. Earl Pomeroy (D-N.D.) and John Shimkus (R-Ill.) have introduced a similar bill (H.R. 4070) in the House.

Under the circumstances, Frolich said the National Biodiesel Board will push for a retroactive credit and hope for passage of a measure, like the one introduced by Grassley and Cantwell, to change the credit to a producers tax credit and extend it for several years.

"The National Biodiesel Board is proactively working to ensure that as soon as the Senate returns they hit the ground running to ensure a retroactive extension is put into place to get the industry up and running again and get plants back to producing fuel," Frolich said.

Want to read more stories like this?

E&E is the leading source for comprehensive, daily coverage of environmental and energy politics and policy.

Click here to start a free trial to E&E -- the best way to track policy and markets.