Biodiesel makers livid with IRS

It's only fitting that the U.S. Internal Revenue Service (IRS) is drawing ire from more quarters than usual today, April 17th, the tax filing deadline day in the U.S.

Biodiesel developers in America just learned that the IRS recently opened a loophole benefiting big oil companies wanting to get into biodiesel. And they're not happy.

The last thing big oil needs is another subsidy, they say.

"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," said Joe Jobe, CEO of the National Biodiesel Board (NBB). "It's our belief that this credit was developed to help a specific emerging technology, and not to further subsidize existing petroleum refineries."

The 'certain companies' he refers to would include Texas-based ConocoPhillips (NYSE: COP) and Tyson Foods (NYSE: TSN), which yesterday announced a strategic alliance to produce and market 'renewable biodiesel' (see ConocoPhillips and food processor Tyson partner for biofuels.)

Biodiesel developers accuse some in the oil industry of successfully lobbying the White House and U.S. Department of Treasury to exploit a loophole in a renewable diesel tax credit law for their own benefit.

The provision in question allows fuel made from a specific process called thermal de-polymerization (TDP) 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.

Just over two weeks ago, the IRS ruled in the oil companies' favor to expand the TDP definition to include the conventional petroleum refining process.

Companies like ConocoPhillips that intend to add raw vegetable oils and fats at their existing oil refineries and qualify for the credit could receive hundreds of millions of unbudgeted dollars, the NBB says.

"This is bad energy policy, bad agricultural policy and bad fiscal policy," Jobe said. "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."

The NBB says the tax credit would simply subsidize oil companies for their existing capacity, stunt the growth of the emerging biodiesel industry, not create significant new jobs and go "in the exact opposite direction" of the intent to create energy independence for the U.S.

Further, the NBB quotes a study that apparently found that the economic stimulus created by biodiesel plants more than pays for the biodiesel tax incentive—something it says so-called 'renewable diesel' doesn't accomplish by feeding off of the tax incentive.

Biodiesel developers themselves weren't pleased.

"There's no question that the government has encouraged our plant and others like us through grant programs and a federal tax incentive for biodiesel," said Ross, president and founder of Mid-Atlantic Biodiesel. "Now, we feel like we are about to be stranded on a bridge to nowhere."

"It doesn't seem like it's in the spirit of the tax credit," Martin Tobias, CEO of Imperium Biodiesel, told the Cleantech Group. "The idea that you're just giving money to big oil for a hydrocracker they paid off 20 years ago is simply ludicrous."

"I don't think it'll affect us at Imperium, but it might make it hard for small guys to stay in business," he said.

Concerns about diesel's origin and subsidies aside, Allen Schaffer, executive director of the Diesel Technology Forum, a group representing leading diesel vehicle and engine manufacturers and others in the industry [ed.: incl. two oil companies, neither of which is ConocoPhillips], told the Cleantech Group the diesel industry is very receptive to all renewable diesel fuels.

"Whether it's a soy-based product, animal fat-based product or biodiesel or biomass-to-liquid, it doesn't matter, provided they can meet the quality specifications and performance specifications."

"Up to now, it's been all about the beans and the tax credits to produce biodiesel. That's been an important kick-start for that industry, but all of these renewable diesel technology should have the opportunity to play."