The heads of the Senate Finance Committee have told Senate leaders they plan to move forward early in 2010 with an extension of a $31 billion package of tax measures that are expiring at the end of the year.
Sens. Max Baucus (D-Mont.) and Chuck Grassley (R-Iowa) sent a letter to Senate Majority Leader Harry Reid (D-Nev.) informing him that the Senate Finance Committee intends to take action to extend the range of credits for businesses and individuals shortly after lawmakers return from the holiday recess in mid-January.
Baucus and Grassley are the chairman and top Republican, respectively, on the panel charged with writing tax law. They said they intend to extend the credits retroactively to the beginning of 2010, so there is no gap for recipients of the measures.
The package includes a $7 billion research and development credit, as well as a number of renewable energy provisions and a state sales-tax write-off for individuals. "These provisions are important to our economy –– not only because they help create jobs, but also because they are used to address pressing national concerns," the lawmakers said in the letter. "We understand that the expiration of these provisions creates uncertainty and complexity in the tax law."
The House passed an extension of the tax measures before lawmakers in that chamber adjourned for the year. But the Senate has been unable to find time to push through the tax package.
Daniel Oh, president and CEO of Renewable Energy Group in Iowa, the largest supplier of biodiesel in the United States, said his company was currently reviewing operations at each of the nine plants in its network in this country.
"The news that the biodiesel tax credit won't be extended has put our industry in a state of turmoil," Oh said through a spokeswoman. "REG is evaluating feedstock pricing, demand opportunities, production levels and, in turn, staffing options for each one of the biodiesel plants in our nationwide network to determine the best outcome for our customers and company."
National Biodiesel Board spokesman Michael Frohlich said some of the damage could be reversed if the Senate approves the extension in January, though reconciling the bill with the House-passed measure could lengthen the process. Even then, the industry as a whole could go through some rough times before the extension becomes law, Frohlich said.
NBB is working to make the issue a top legislative item when Congress meets again in January, Frohlich said. The tax credit extension would be made retroactive to Jan. 1 to ensure continuity of the credit, he said. "If they act swiftly they can minimize the damage to the industry," Frohlich said. However, even making the credit retroactive may fail to save some smaller biodiesel producers who have thin cash cushions, Frohlich said.
Even if the Senate passes the bill in the first few months of 2010, many producers will go out of business as they will be unable to produce the renewable fuel at a cost competitive with petroleum diesel, according to NBB. "The smaller biodiesel plants don't really have the operating capital to continue to produce fuel that no one will buy," he said. "There is no doubt this is going to sting - there are going to be layoffs."
At the industry's height in mid-2008, there were nearly 180 biodiesel refiners in the United States producing an average of 60-70 million gallons a month, according to the U.S. Energy Information Administration.
Overall production is now at about 15 percent of its 2.9 billion gallons per year capacity, with state mandates providing the only dependable demand. As of August, production was about 40 percent lower than it had been during the same period the year before, EIA says.
Industry officials predict that U.S. biodiesel production already fell by more than a half last year to between 300 million and 350 million gallons from 700 million gallons in 2008. That was after rising for nine consecutive years.
The recession and lower crude prices were partly to blame, as were the steps taken by Europe to block imports of U.S. biodiesel. Last March, the European Union introduced stiff import tariffs for biofuels. Since Europe previously consumed about 95 percent of global exports, that hit producers in other regions hard.
The biodiesel industry is now operating at only 15 percent of its potential capacity, according to NBB, largely because the price of traditional diesel has collapsed. There are close to 180 biodiesel plants operating in about 40 states.
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