Climate Bill Rekindles Debate over Biodiesel Tax Breaks

by Marc Heller (E&E News) Thirteen years ago, Congress decided a tax credit for companies that blend biodiesel shouldn’t go to refineries that put just a drop of the alternative fuel’s main ingredient — crops, animal fat and other organic material — into petroleum.

The idea, lawmakers said, was to use the tax credit to spur development of new biofuel plants, not to subsidize petroleum plants that were already running. Congress overruled guidance from the IRS to reach that conclusion in 2008.

Now, a similar debate is brewing as the Senate takes up the Democrats’ climate and social spending bill, the "Build Back Better Act," which passed the House last month.

The biodiesel industry is asking the Senate to tweak the legislation to clarify that refineries that "co-process" petroleum with small amounts of biofuel feedstocks shouldn’t qualify for new renewable aviation fuel tax credits, for the same reason they can’t claim the biodiesel tax credit.

"We thought Congress agreed in 2008," said Paul Winters, a spokesman for the National Biodiesel Board, an industry group.

At issue are incentives congressional Democrats are pushing to introduce more environmentally friendly fuel in the transportation system. Biofuel supporters say using token amounts of their industry’s products misses the point of encouraging alternative fuels.

But airline companies support sustainable aviation fuels (SAF) that contain small amounts of crop-based or similar feedstocks as a way to reduce greenhouse gas emissions.

The advantage of those fuels, the companies and other supporters say, is that they can be made within existing manufacturing and supply chains — a quick way to reduce greenhouse gas emissions while industry, researchers and policymakers work on more long-term solutions.

"We believe a SAF-specific blender’s tax credit would be the most impactful measure in the near term to improve cost-competitiveness, expand supply and help establish the long-term commercial viability of SAF," said Carter Yang, a spokesman for Airlines for America, a lobbying organization for the airlines.

Petroleum groups say excluding co-processing wouldn’t make sense, given the Biden administration’s goal to boost sustainable aviation fuel to 3 billion gallons annually by 2030. California also allows co-processed petroleum as part of its low-carbon fuel standard.

But co-processing doesn’t do much to promote biofuel, the NBB contends. Refineries typically mix in 5 percent or less of an ingredient like animal fat to qualify as sustainable fuel, and it’s not entirely clear that the bio-based ingredient that goes to the refinery ends up in the final product, Winters said.

Fuel that comes out of the refineries isn’t typically tested for renewable content, Winters said, which could have been lost in flaring or diverted to other products.

A proposed new aviation fuel grant program currently in the "Build Back Better Act," H.R. 5376, includes one definition of sustainable aviation fuel, and the proposed sustainable aviation fuel tax credit offers a slightly different definition, he said, although the wording appears to allow co-processed petroleum in either case — including coal-to-liquid conversions.

A new clean fuel production credit in the bill would exclude co-processed fuel — except for aviation — from the definition of transportation fuel, according to the NBB.

Further complicating the issue, aviation and petroleum industry sources said the legislation appears to allow some types of feedstock co-processing to qualify for the new credits, but excludes others such as fats and oils. Those details remain to be settled as senators further adjust the bill before it reaches the floor. READ MORE

Excerpt from Politico's Morning Energy: DON'T TRUST THE CO-PROCESS: Biofuels proponents and fuel marketers want more information from Congress on a proposed tax credit for sustainable aviation fuel. In a letter Thursday, the groups asked congressional leaders to exclude fuels made by co-processing biomass with petroleum at oil refineries from the credit, arguing such a move would ensure a level playing field for emerging technologies. The letter was signed by biofuels advocates Growth Energy and the National Biodiesel Board as well as fuel groups NATSO and SIGMA.

Recall: The House-passed reconciliation package includes a refundable SAF tax credit that would begin at $1.25 per gallon and go up to $1.75 for blenders that supply fuel with an at least 50 percent life cycle estimate reduction in greenhouse gas emissions in comparison with petroleum-based jet fuel. The bill also includes an extension of incentives for biodiesel, renewable diesel and alternative fuels, and the groups that wrote the letter note that co-processed fuel is already excluded from eligibility for the current biodiesel and renewable diesel blenders' tax credit. READ MORE

Excerpt from Politico's Morning Energy: Also worth noting, a carbon tax is absent from the draft Senate Finance bill, an unsurprising development that all but closes the door on efforts by Wyden and committee member Sen. Sheldon Whitehouse (D-R.I.) to add the long-elusive policy. Whitehouse has claimed 49 senators support the idea of including a carbon tax in Democrats’ climate and social spending legislation, but the one senator in question, Manchin, is unlikely to come around to the idea. Most House Democrats also prefer not to insert a new tax at this late stage. READ MORE