Democrats are trying to put their stamp on U.S. biofuels policy through the tax code, with recent examples including the $300 billion farm bill and a House-passed, $55 billion tax measure that would expand policies enacted by the GOP Congress earlier this decade. The farm bill includes a new $1.01 per gallon credit through 2012, authored by Sen. Ken Salazar, D-Colo., to spur production of cellulosic biofuels made from wood and grasses. The tax bill that the House passed last week broadens existing biodiesel incentives to provide the same $1 dollar-per-gallon benefit for fuel produced from animal and vegetable greases as those enjoyed by "virgin" [uncooked] oils from vegetable and animal fat by extending both for one year. Fuel produced from animal and plant greases now has only a 50 cents-per-gallon tax credit.
The tax bill removes a requirement that companies use what is known as a "thermal depolymerization" process to melt down animal and industrial waste for fuel if they want to qualify for a separate $1 per gallon renewable diesel credit -- a provision that opens up a wide range of technologies. Jet fuel produced from animal waste, including chicken droppings, would now qualify for the renewable diesel credit.
"It's huge," said Michael McAdams, executive director of the Advanced Biofuels Coalition, referring to the fact that the Democrats have broadened these incentives to make them technology neutral. His clients include Amyris Technologies Inc., which is developing a technology to break down plant sugars through fermentation to create hydrocarbon fuels. But critics of the measures say they amount to nothing more than a grab-bag of special-interest giveaways. Howard Gleckman, a senior research associate with the Tax Policy Center, singled out the chicken-waste jet fuel language for particular derision. "We keep going around in this big circle. Each set of incentives chases the other," said Gleckman. Although Democratic leaders have expressed interest in overhauling the tax code next year, Gleckman said he saw little chance given the rhetoric of presidential hopefuls Sens. John McCain, R-Ariz., and Barack Obama, D-Ill. "John McCain talks a lot about the spending side of pork; he doesn't talk about the tax side," he said. "Obama wants to just add a lot of tax breaks for everyone."
Democrats are not simply spreading the largess; they are also taking it away. In the House-passed tax bill, oil companies would lose eligibility to benefit from the $1-per-gallon renewable diesel credit for producing fuel co-processed with petroleum. Instead, they would only get a 50-cent credit. "This bill closes a loophole big enough to drive a tanker truck through," said Rep. Lloyd Doggett, D-Texas, the prime mover behind the provision. That comes at the expense of ConocoPhillips and chicken, beef and pork processor Tyson Foods, Inc., who last year announced a partnership to produce renewable diesel using co-processed petroleum. Company officials could not be reached for comment by presstime. Mark Kibbe, tax policy analyst with the American Petroleum Institute, said Congress should not be trying to get oil companies into the business of renewable fuels on the one hand while taking away an incentive to do so on the other. But he praised Democrats for not targeting other oil company incentives for offsets.
This article appeared in the Saturday, May 31, 2008 edition of National Journal Daily.
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