Grassley Q & A: Renewable Energy and Iowa Jobs
December 4, 2009
Q: What is biodiesel? A: Biodiesel is a clean-burning renewable fuel alternative to petroleum-based diesel. It’s produced from vegetable oils and animal fats. Since the agricultural products used to produce biodiesel are grown or raised in the United States, it provides jobs and economic opportunities to rural communities while also reducing America’s dependence on foreign oil. Q: Are there currently federal tax incentives to help develop biodiesel? A: I have long worked for tax incentives for renewable fuels like biodiesel. These fuels reduce our dependence on foreign oil and create jobs in Iowa and rural communities across America. In 2004, as Chairman of the tax-writing Senate Finance Committee, I passed legislation to establish the first-ever biodiesel tax credit as part of the American Jobs Creation Act enacted that year. This tax credit provides biodiesel producers and blenders a $1.00 per gallon tax credit for “agri-biodiesel” produced from agricultural products, such as soybeans, and a 50-cent per gallon tax credit for biodiesel produced from recycled products, such as fryer grease. In 2005, I won passage of legislation to extend the biodiesel tax credit and establish an additional tax incentive for small biodiesel producers as part of the Energy Policy Act enacted that year. This tax credit provides an additional 10-cents per gallon tax credit to small “agri-biodiesel” producers with production capacity below 60 million gallons per year. Both the biodiesel tax credit and the small agri-biodiesel credit are scheduled to expire at the end of the year, on December 31, 2009, and I’m working in the Senate to extend them. Q: Why is it important that the biodiesel tax credit is extended? A: Biodiesel has the potential to play a major role in reducing America’s reliance on foreign oil. According to the National Biodiesel Board, in 2008, 690 million gallons of biodiesel were produced in the United States, displacing 38.1 million barrels of petroleum. According to the Iowa Renewable Fuels Association, there are 15 biodiesel refineries in Iowa, with a capacity of more than 320 million gallons a year. This represents 12 percent of the national capacity. Moreover, in 2008, the U.S. biodiesel industry supported 51,893 jobs in all sectors of the economy, including 6,100 jobs in Iowa. The biodiesel industry, like many others, is struggling due to the economic downturn. With the national unemployment rate at 10.2 percent, failure to extend the biodiesel tax credit before the end of the year would place thousands of jobs in jeopardy. In 2008, because of economic challenges, five plants in Iowa with a capacity of 107 million gallons were idle. Right now, the entire biodiesel industry is operating at about one-third of its capacity. All together, biodiesel adds about $1.1 billion to the Iowa’s gross domestic product. Without the industry, all of this economic activity would vanish, including any wages and secondary jobs that support the biodiesel industry, as well as associated tax revenues. In the past, Congress has retroactively extended certain tax credits after their expiration. However, it’s very important that Congress not wait to extend the biodiesel tax credit. The biodiesel blender’s tax credit is applied against the excise tax paid by retail sellers. This means that if the biodiesel tax credit is allowed to expire, the price of biodiesel will immediately be significantly higher than petroleum diesel. This would instantly put biodiesel at a competitive disadvantage to petroleum-based diesel, resulting in a reduction in the demand and production of biodiesel. So Congress should not wait to take action to extend the biodiesel tax credits that I got enacted in 2004 and 2005. Q: Are steps being taken to extend the biodiesel tax credit? A: Last summer, I introduced the Biodiesel Tax Incentive Reform and Extension Act with Senator Maria Cantwell of Washington. Our bipartisan bill would extend the biodiesel tax credit for five years, giving the industry the tax certainty needed to expand production capacity and invest in the infrastructure necessary to continue working to displace petroleum diesel fuel with renewable, low-carbon biodiesel. Our bill also simplifies the tax credit and eliminates potential abuses of the credit. Congress has also been discussing tax extenders legislation that would extend tax provisions set to expire at the end of the year, including the biodiesel tax credit. Unfortunately, consideration of tax extenders legislation continues to be pushed back by congressional leaders. It has been widely reported that the Senate leaders plan to combine the non-controversial tax extenders legislation with other more controversial tax legislation. I oppose this approach because it could create a legislative deadlock. Instead, tax extenders legislation should be taken up separately and passed before year’s end to prevent the U.S. biodiesel market from coming to a grinding halt on January 1, 2010.
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