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Congress Finalizes Tax Incentives with Net Federal Cost Expecting to Be Close to $11.5 Billion

Senate Finance Committee Chairman Chuck Grassley, R-Iowa, was one of the main authors of the $14.5 billion tax incentives, offsetting revenue raisers that will reduce the net federal cost to around $11.5 billion over 10 years. Although the number is substantially higher than the House and Bush Administration requested $6.7 billion level, it is not expected to prevent the bill from passing.

Passage by the end of the week remains very likely now that the final tax incentives are included. Here are several provisions from the tax incentives package.

The tax section of the comprehensive energy bill contains the following provisions important to the production and use of ethanol and biodiesel:

Update of small ethanol producer definition-- The definition of a small ethanol producer is updated from 30 to 60 million gallons per year. Reflecting the growth of ethanol demand over the last 5 years, farmer-owned ethanol plants now generally produce 40 to 50 million gallons per year. This change will give the modern small producer access to the existing small ethanol producer tax credit (SEPTC).

Extension of biodiesel tax credit--The volumetric excise tax credits for biodiesel, currently scheduled to expire at the end of 2006, is extended through 2008.

Small agri-biodiesel tax credit-- Creates a new credit for small agri-biodiesel producers of 10-cents-per-gallon for up to 15 million gallons of agri-biodiesel produced by producers with annual capacity not exceeding 60 million gallons.

Alternative fuel refueling property tax credit-- Allows taxpayers to claim a 30% credit for the cost of installing clean-fuel vehicle refueling pumps. Clean fuels must contain at least 85% ethanol, natural gas, compressed natural gas, liquefied natural gas, liquefied petroleum gas, or hydrogen. Biodiesel blends of 20% or higher also qualify.

Wind energy — Since the inception 13 years ago of the wind energy tax credit, wind energy production has grown considerably. Wind energy helps to empower rural communities to reap continued economic benefits. The installation of wind turbines has a stimulative economic effect because it requires significant capital investment which results in the creation of jobs and the injection of capital into often rural economic areas. This provision extends the placed-in-service date through December 31, 2007.

Biomass — Open loop biomass includes organic, non-hazardous materials such as saw dust, tree trimmings, agricultural byproducts and untreated construction debris. The development of a local industry to convert biomass to electricity has the potential to produce enormous economic benefits and electricity security for rural America. In addition, studies show that biomass crops could produce between $2 billion and $5 billion in additional farm income for American farmers. This provision extends the placed-in-service date through December 31, 2007.

Pig and Cow Manure — Anaerobic digestion of manure improves air quality because it eliminates as much as 90% of the odor from feedlots and improves soil and water quality by dramatically reducing problems with waste run-off. The technology used to create the electricity results in the production of a fertilizer product that is of a higher quality than unprocessed animal waste. By using animal waste as an energy source, an American livestock producer can reduce or eliminate monthly energy purchases from electric and gas suppliers and provide excess energy for distribution to other members of the community. This provision extends the placed-in-service date through December 31, 2007.