IRS Ruling Threatens Biodiesel Industry

Renewable fuel advocates urge Congress to close dangerous and expensive loophole.

Published on: Apr 25, 2007

A dark cloud hangs over the biodiesel industry and threatens to dampen the benefits that biodiesel brings to all Americans. The Iowa Soybean Association released the following information in its weekly newsletter on April 20.

The biodiesel industry is under threat by some large integrated oil companies, who have aggressively pursued access to a federal tax incentive that was designed to stimulate an emerging technology. Special interests have successfully lobbied the U.S. Department of Treasury to exploit a loophole in a renewable diesel tax credit law for their own benefit.

"Certain powerful oil companies have managed to get the government to expand the definition of a separate provision that was added into the biodiesel tax credit law late in the legislative process," says Joe Jobe, CEO of the National Biodiesel Board. "It's our belief that this credit was developed to help a specific emerging technology, and not to further subsidize existing petroleum refineries."

This tax break wasn't meant for big oil

The provision in question allows fuel made from a specific process called thermal de-polymerization to qualify for the same dollar-per-gallon incentive that was created for biodiesel produced from agricultural resources. The TDP process is a new technology to turn hazardous wastes, plastics and food wastes, like poultry offal and carcasses, into a boiler fuel.

Congress never had a chance to debate the provision, but it passed, along with the biodiesel tax incentive extension, in the 2005 Energy Policy Act.

Now the Internal Revenue Service has ruled in the oil companies' favor to expand the TDP definition to include the conventional petroleum refining process. Those companies want to add raw vegetable oils and fats at their existing oil refineries and qualify for the credit.

Bad energy policy, bad ag policy, too

"This is bad energy policy, bad agricultural policy and bad fiscal policy," Jobe says. "If Congress lets this stand, our government will be handing over U.S. taxpayer money to some of the richest companies in the world, and it will not provide many of the benefits that the biodiesel tax incentive has given back to America."

Jobe points out that the petroleum industry is not monolithic and should not be painted with one broad brush. "We are talking about just a few companies who are engaged in this activity with respect to 'renewable diesel.' The petroleum industry as a whole has worked in partnership with the biodiesel industry. Many segments of the petroleum industry, especially on the distribution side, have embraced biodiesel and supported its growth," he says.

Biodiesel board angry at ConocoPhillips

The National Biodiesel Board is outraged at ConocoPhillips teaming up with Tyson Foods. ConocoPhillips is continuing to expand its renewable fuels portfolio, this time with Tyson Foods. The two companies announced a plan on April 16 to convert animal fat from Tyson into renewable diesel.

The resulting fuel, created through a thermo-chemical process, won't be, strictly speaking, biodiesel, because it will be able to run through existing infrastructure and will be sold as regular diesel. And Lou Burke, who manages renewable energy programs for ConocoPhillips, says that's a huge plus.

"The idea is that if you can build in some renewable content into the base fuel," Burke explains, "it allows you to increase the renewable content without causing disruptions because of what does and does not fit in the existing infrastructure."

But the renewable diesel product will qualify for the dollar-per-gallon biodiesel tax credit. During a teleconference Monday afternoon April 16, National Biodiesel Board CEO Joe Jobe said that amounts to a tax payer rip-off.

This is not what Congress intended

"We believe that it's bad public policy for tax payers that are paying as much as $3 gallon for gasoline to have their tax money go to pay them another dollar per gallon to do this," Jobe asserted.

Jobe says Congress clearly intended the biodiesel tax credit to spur development of the domestic plant-based biodiesel industry. But the fuel created by the ConocoPhillips-Tyson joint venture may never come to market. The U.S. Environmental Protection Agency must still approve the renewable diesel fuel, though most observers believe the agency will do so.