Fiscal Cliff Deal Extends Biofuel Credits

By now the New Year’s fiscal cliff deal has received quite a bit of press. We have already discussed the significance of extending the Wind Production Tax Credit here earlier. Less well known is the inclusion of measures included in the deal to revive tax credits for advanced biofuels. It is well worth a moment to examine these to understand what impact these actions might have on both our future energy and food supply.

The American Taxpayer Relief Act of 2012 revived a number of tax credits that had expired at the end of 2011 and revised the definition of biofuels to include algae-based fuels.

According to the National Biodiesel Board, the restoration of the $1 per gallon credit for biodiesel producers which originated in 2005 and expired in 2011, could potentially add up to 30,000 new jobs this year.  According to Anne Steckel, vice president of federal affairs at the National Biodiesel Board, "It's been a long year with a lot of missed opportunity and lost jobs in the biodiesel industry. But we're pleased that Congress has finally approved an extension so that we can get production back on track.” According to research, had the incentive been in place this year, an additional 300 million gallons would have been produced, supporting more than 19,000 additional jobs. This is just another example of how the adage about having to spend money to make money applies to government as much as it does to business.

Bob Dineen, of the Renewable Fuels Association, who we spoke with back in October said, “The one year extension of the [$1.01 per gallon] cellulosic producer tax credit and accelerated depreciation provides some measure of certainty to ensure that 2013 will be a year of growth and milestones for the advanced ethanol industry.”

Also of note is the replacement of the term “cellulosic” biofuels, with “second generation” which has been expanded to include algae as a qualified feedstock.

Tax credits are not particularly useful in the short term for companies that are not yet profitable, but these new definitions will help to spur investment. Under the new law, credit can now be taken for the more than half of the algae that end up as carbohydrate residue, after the lipid content is directly converted to biodiesel or other oil substitute. The carbohydrate content can then be used as feedstock to produce ethanol using first generation (starch-based) technology. The algae credit is expected to cost taxpayers $59 million.

These credits will certainly help to stabilize the investment climate for second generation biofuel producers.

Meanwhile, the Renewable Fuel Standard, which mandates 36 billion gallons of biofuel be incorporated into the nation’s gasoline supply by 2022, is left unchanged, though not necessarily unaffected.

For those concerned about the impact of corn ethanol on the food supply, this bill will have little impact since most of the conflict occurs with corn and the RFS already caps the amount of ethanol that can be produced from corn at 15 billion gallons. As we are already very close to meeting that cap, there will be very little additional growth in corn ethanol. The remaining 21 billion gallons must be made up of biofuels from other sources, largely from feedstocks such as cellulosic ethanol, which are generally more sustainable and less threatening to food production.

As a result, we can expect to see less conflict with the food supply and a more efficient overall process since, for example, the cellulosic portion of the corn plants (e.g. stalks, leaves) can now potentially be used to provide additional fuel from the same amount of land, water and fertilizer resources consumed. Alternatively, in the case of purpose-grown cellulosic feedstocks like switchgrass, these can be grown in more marginal, less fertile lands, requiring less water and other resources.

[Image credit: glbrc communications: Flickr Creative Commons]

RP Siegel, PE, is an inventor, consultant and author. He co-wrote the eco-thriller Vapor Trails, the first in a series covering the human side of various sustainability issues including energy, food, and water in an exciting and entertaining format. Now available on Kindle.

Follow RP Siegel on Twitter.