U.S. House Ways and Means Committee Chair Dave Camp (R-MI) and U.S. Senate Finance Committee Chair Ron Wyden (D-OR) are expected to take different approaches to tax reform this year. Camp has stated publicly his intent to focus solely on comprehensive tax reform, which he and his staff have been working on for over a year. He is expected to release a discussion draft of comprehensive tax reform legislation in the coming months.
Meanwhile, newly designated Chair Wyden has publicly expressed support for the idea of comprehensive tax reform, but is expected to focus his near term efforts on passing legislation retroactively to extend several renewable energy incentives that expired at the end of 2013. These incentives include tax credits for the production of biofuels, including cellulosic and biodiesel. Senate Finance Committee Members Charles Grassley (R-IA) and Maria Cantwell (D-WA) have recently introduced legislation to extend the expired $1 per gallon biodiesel incentive, which could be included in a more comprehensive tax extender package.
Given this election year, as well as the divergent approaches of the two Chairmen of the tax writing committees, it will likely be difficult to get comprehensive tax reform legislation and possibly even a tax extender package passed in 2014.
On February 13, 2014, Senators Maria Cantwell (D-WA) and Chuck Grassley (R-IA) introduced S. 2021, a bill to extend and reform the $1 per-gallon biodiesel tax credit that expired on December 31, 2013. The bill would extend this credit for three years through 2017. It would provide a $1 per-gallon tax credit for the production of biodiesel, renewable diesel, and aviation jet fuel that complies with fuel standards and the Clean Air Act. The bill would modify the definition of biodiesel to encourage production from any biomass-based feedstock, or recycled oils and fats. It would increase the credit to $1.10 per-gallon for the first 15 million gallons of biodiesel produced by small producers with an annual production capacity of less than 60 million gallons. In addition, the bill would restrict the credit to fuel producers to ensure the credit goes to domestic biodiesel production and to prevent eligibility of fuel blenders that could potentially add a very small amount of biodiesel to petroleum diesel (a practice known as "splash and dash") to qualify.
This bill would likely be added to a larger tax extender package that new Senate Committee on Finance Chair Ron Wyden (D-OR) has said he is interested in moving through the Committee in the near future. It would be significant for the biodiesel industry, which produced .7 billion gallons more in 2013 when the biodiesel tax credit was available than in 2012 when Congress let the credit expire.
Several incentives designed to encourage renewable energy development and production, including the $1 per gallon tax credit for biodiesel producers and the $1.01 per gallon credit for cellulosic ethanol production, expired on December 31, 2013. Should extenders be considered, it is likely these two credits will be extended and likely retroactively. Although given election year politics and ongoing budget battles, if and when this happens is tougher to predict. In the short term, one legislative vehicle could be legislation to increase the debt limit expected to pass later this winter or early spring. Some argue Congress may not consider any tax extender package until later this year after the November elections.
The biofuels industry is working hard to press Congress quickly to take up and pass a tax extender package. The biodiesel and cellulosic producer tax credits are considered essential parts of the suite of current policies designed to promote the industry.
On December 12, 2013, Representative Scott Peters (D-CA), Chair of the House Algae Caucus, introduced H.R. 3758, a bill to extend the $1.01/gallon second generation biofuel producer credit and the special allowance for second generation biofuel plant property. These incentives are among several currently set to expire at the end of the year.
Members of the House and Senate have sent letters to the Chairs and Ranking Members of their respective tax writing Committees -- the House Ways and Means Committee and the Senate Finance Committee -- urging the extension of ten clean energy incentives as soon as possible. Biofuels and biodiesel incentives are among those identified in the letter as important to extend until any broader tax reform legislation is passed.
The House is currently out on its winter break and will not return until January. There are promising signs that the House and Senate will work to pass retroactive extensions of incentives for the biofuels industry when they resume legislative business early next year.
Currently, there are two nearly identical proposals before Congress to provide a business related tax credit for the production of renewable chemicals. S. 1267, the Qualifying Renewable Chemical Tax Production Act of 2013, was introduced on June 27, 2013, by Senator Debbie Stabenow (D-MI). The bill has one co-sponsor, Senator Al Franken (D-MN). H.R. 3084, a bill by the same name, was introduced on September 12, 2013. It currently has five bi-partisan co-sponsors, including Representatives Richard Neal (D-MA), Scott Peters (D-CA), Linda Sanchez (D-CA), Allyson Schwartz (D-PA), and Steve Stockman (R-TX). A copy of S. 1267 is available online. A copy of H.R. 3084 is available online.
On December 9, 2013, 60 companies sent a letter to the leaders of the U.S. House Ways and Means Committee and U.S. Senate Committee on Finance urging them to extend various biofuels incentives. These incentives, including the $1.00 per gallon credit for biodiesel, are scheduled to expire at the end of the year. While industry was able to secure extension of these incentives last year in legislation to prevent the "fiscal cliff," the prognosis for similar success is diminished in light of the current comprehensive tax reform effort. The companies are against any proposal that would allow the biofuels tax credits to expire with the intent that they will be included in broader tax reform.
This week, the non-partisan Joint Committee on Taxation released its score of S. 795, the Master Limited Partnerships Parity Act, a bi-partisan bill introduced by Senator Chris Coons (D-DE) earlier this year. The Committee estimated that the bill would cost $1.3 billion over ten years. Reportedly, Senator Coons welcomed the score and has committed to trying to find an offset or spending cut to pay for it. The Chair of the Senate Finance Committee's Subcommittee on Energy, Natural Resources and Infrastructure, Senator Debbie Stabenow (D-MI), has publicly stated her support for the legislation, which helps the bill's chances for passage.
S. 795 would amend the Internal Revenue Code, with respect to the tax treatment of publicly traded partnerships as corporations, to expand the definition of "qualifying income" for such partnerships to include income and gains from renewable and alternative fuels and energy derived from renewable fuels and chemicals, as well as other types of alternative energy. Master Limited Partnerships (MLP) has been used by the fossil fuels industry since the 1980s as a successful way to attract capital and the renewable energy industry hopes to do the same. Representative Ted Poe (R-TX) has introduced a companion bill, H.R. 1696, in the House of Representatives.
On November 12, 2013, 17 "green groups," including Greenpeace, the Sierra Club, and the League of Conservation Voters, sent a letter to the leaders of the U.S. Senate Committee on Finance urging the extension of several tax incentives designed to promote investment in the development of clean energy. For instance, the letter urges the extension of the 48C Advanced Energy Manufacturing Tax Credit, which provides an investment tax credit of up to 30 percent of qualified investment in a qualifying advanced energy project, which is defined to be a project that establishes, expands, or re-equips a manufacturing facility for the production of certain types of property, including property designed to refine or blend renewable fuels or to produce energy conservation technologies.
Several tax incentives designed to help encourage renewable energy production are set to expire at the end of the year.
The Internal Revenue Service (IRS) has released an advice memorandum from the agency's Office of Chief Counsel determining that "y electing the § 6426(c) excise tax credit [biodiesel mixture credit] and/or the § 6427(e) excise tax payment instead of the § 40A income tax credit, a blender is not required by § 87 or by § 61 to include in its gross income the amount of the § 6426(c) excise tax credits and/or the § 6427(e) payments that it claims." A copy of the memorandum is available online.
On September 12, 2013, Representative Bill Pascrell (D-NJ) introduced H.R. 3084, the "Qualifying Renewable Chemical Production Tax Credit Act," to provide tax parity for the renewable chemical industry in the United States. Along with Representative Pascrell, the original co-sponsors of the bi-partisan bill are Representatives Steve Stockman (R-TX), Allyson Schwartz (D-PA), Linda Sanchez (D-CA), and Richard Neal (D-MA).
Essentially, the bill would extend the current production tax credit (PTC) for cellulosic biofuels to producers of renewable chemicals. It would provide a PTC of 15 cents per pound of eligible renewable content, but it caps the benefit at $500 million and a single producer may not receive more than $25 million in a tax year. A copy of the legislation is available online. Representative Pascrell has stated publicly that he hopes the legislation will help incentivize the U.S. production of renewable chemicals and help develop the industry here in the United States.