Powerful members of the Senate Finance and Agriculture committees are fighting to keep hundreds of millions of dollars of biofuels tax breaks in the farm bill.
The package from the Senate Finance Committee would balance new incentives for cellulosic ethanol and biodiesel on the back of ethanol. It would reduce the ethanol blenders tax credit by 6 cents per gallon -- a move that is estimated to raise $1.2 billion over 10 years.
"Now that the ethanol industry has matured, it is appropriate to curb the tax subsidy provided to ethanol," Finance Chairman Max Baucus
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(D-Mont.) said in a statement describing the tax package.
Baucus and his ranking member, Sen. Charles Grassley (R-Iowa), launched a campaign over the weekend to preserve more than $2 billion in tax incentives, including those for biofuels, endangered species habitat and conservation easements. The Senate included the tax provisions in their version of the farm bill, but House members want them extracted as part of the House-Senate conference negotiations over the bill.
Staff from the Finance Committee and House Ways and Means Committee have continued to negotiate over the weekend but have not yet come to agreement, according to aides. The farm bill conference committee meets again this afternoon, where Sen. Tom Harkin (D-Iowa) hopes to have a final deal in place so he can move forward with the rest of the bill.
Harkin has said he may start holding roll call votes on the funding issues if no deals are made. "We're going to negotiate, but at some point it has to end," Harkin told reporters after the last conference committee meeting Friday.
The tax package and a struggle to find offsets for increased spending in the farm bill have risen to the forefront of the debate on the five-year bill overseeing farm, rural energy and conservation programs. Agriculture Committee members have identified the funding issues as their biggest hurdle as they struggle to complete the new bill by the April 25 deadline, when an extension of current farm programs will expire.
Senators say the array of tax incentives are crucial to passage of the final conference agreement in their chamber, but House members have dug in their heels against them.
"We are being held hostage by tax cuts, but I can't control it," House Agriculture Chairman Collin Peterson (D-Minn.) said Friday. "I know people are upset with me, but I can't give them what they want."
The Senate package has a total of $2.4 billion in tax incentives. It includes $401 million for cellulosic biofuels and $537 million for biodiesel.
About half of the total offsets for all of the tax incentives would come from a reduction to the ethanol blender tax credit. The proposal would reduce the credit from 51 cents per gallon to 47 cents per gallon. The reduction would kick in after ethanol production reaches the 7.5 billion gallon goal in the 2005 energy bill. Biodiesel controversy
The alternative fuel winners in the tax package are cellulosic ethanol and biodiesel. The proposal includes a new, temporary production tax credit for up to $1.01 per gallon of cellulosic ethanol available through the end of 2012. The hefty credit is intended to help spur the more expensive fuels to commercial viability. It is expected to cost $401 million over 10 years.
It would also extend current biodiesel and renewable diesel credits, first established in 2004 and 2005. Baucus said the "nascent" industries need more help to establish themselves and compete with traditional sources of fuel.
The package would give a one-year extension to the current $1-per-gallon credits for biodiesel and renewable diesel. It also extends the extra 10 cents per gallon for biodiesel from "small producers." It adds a cap on how much each facility can reap from the incentives -- producers could only get the incentive for 60 million gallons per year of co-produced fuel.
The biodiesel credits have come under fire in recent weeks in Europe, where the European Biodiesel Board uncovered a "splash and dash" trading policy with some European manufacturers benefitting from the deal (Greenwire, April 2).
Some manufacturers are shipping biodiesel from Europe to the United States, adding a small amount of fuel, claiming the U.S. subsidy, then shipping the fuel back to Europe and selling below prices that exclusively European manufacturers can set, according to the industry group's report. European manufacturers have recommended an anti-dumping action.
The trans-Atlantic journeys in search of biodiesel credits have also come under fire from environmental groups for producing unnecessary transport emissions. Accounting problems
But farm bill conferees have argued more about the pricetag and accounting mechanisms for the tax package than the policy.
Besides deriding a separate tax credit for racehorses, the committee's public negotiations have been a back-and-forth over tax incentives, should they be included at all and how much they would really cost.
Part of the problem is that the score assumes that many of the tax incentives would last for a year, but in reality many of them would likely need to be extended again. House conference committee members argue they could end up costing closer to $10 billion dollars over 10 years -- having a greater effect on the federal budget.
Senators maintain that the scoring mechanism falls under normal congressional procedure. They say it is unfair for the House to protest the method, when the farm bill itself finds savings in its 10-year budget score by assuming five years of funding for some programs.
"I hope the House negotiators will finally take a look at the actual policy instead of throwing it down the drain without seeing the good things in the package," Grassley said in a statement. "But to make this process work, we all must give and take, and be intellectually honest about the numbers."Environment and Energy Daily
