The Force: The Cellulosic Biofuels Tax Credit Is Back, but Is It Really Needed?

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January 3, 2013

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by Jim Lane (Biofuels Digest) Finding it hard to explain to taxpayers why the PTC is needed, for the jump to cellulosic biofuels lightspeed, or to ward off predatory fossil-fuel evildoers?

…So, although the “fiscal cliff” tax rate deal didn’t directly affect biofuels – the industry found itself delighted to see several key tax credit extensions in the final bill.

One is the cellulosic biofuels production credit, now defined as the “second generation biofuel producer credit” and is (i) expanded to apply to liquid fuel derived from cultivated algae, cyanobacteria, or lemna and (ii) extended to apply to qualified fuel production before January 1, 2014.

…The problem with these tax credit provisions is that they are supposed to incentivize steel in the ground but in the end incentivize no such thing.

Why? Projects that need the credit to be viable can’t get 15-year financing on a one-year extender. Lenders zero the credits out because they know the loan must be safe even if the credit sunsets long before the loan does. Projects that don’t need the credit – well, they don’t need the credit. Much as they appreciate it.

So what is the credit? Really, a bonus return on equity, and even more powerfully, a windfall for growers.

…How much does a $1.01 per gallon tax credit mean to a grower? For a reference-size project that gets 80 gallons of ethanol from per ton of biomass, there’s $80.80 per ton of biomass in that PTC. At 5 tons per acre per year, that’s $404 per acre, up for grabs. Lot of scratch when you figure that an acre of 160-bushel corn yields $800 at $5 per, and that’s before costs are figured in.

Now, growers don’t get all of that. But it is a powerful incentive. Especially for the grower of annuals, where a one-year tax credit extension offers a workable time frame. Far more so than to the producer who has to pay a 15 or 20 year note. READ MORE

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