Blender’s Credit v Producer’s Credit 2017-05-18T23:08:31+00:00

Blender’s Tax Credit v Producer’s Tax Credit

BY JOE GERSHEN

June 27, 2016
California Biodiesel Industry Commentary

At the end of last year there was a very strong effort made by domestic biodiesel producers, led by the National Biodiesel Board (NBB), to not only reinstate the federal blender’s tax credit (BTC), but to transform it into a producer’s tax credit (PTC). On the surface of it this might have seemed like a simple change since in most cases the minimum .1% diesel requirement (1 gallon of #2 diesel per 999 gallons of B100 biodiesel) is blended at biodiesel production facilities prior to shipping resulting in a B99.9 blend. But the truth is that this transformation was (and is) a political hot potato and game changer because it would limit the tax credit to domestic producers.

What this would do is effectively shut the tax credit arb for foreign produced biodiesel and renewable hydrocarbon diesel (RHD), which currently is shipped to the US and enjoys an extra dollar per gallon of margin, courtesy of US taxpayers. If reformed, keep in mind that foreign producers would continue to receive the hefty subsidies that they already enjoy, in the form of RINs and LCFS credits from the federal Renewable Fuel Standard (RFS) and California’s Low Carbon Fuel Standard (LCFS) – currently to the tune of about $2.40 per gallon for low carbon biodiesel. So changing the BTC to a PTC would simply remove the extra dollar credit value.

In addition to foreign producers, customers like petroleum refiners and others that are obligated under the RFS and regulated under the LCFS don’t like this idea. The more biodiesel and RHD in the market the lower prices for these alternative diesel fuels (ADFs). But producers in the US believe that it would help level a playing field in which they are disadvantaged compared to foreign producers and help put more Americans to work producing American-made ADFs which would help start up some of the plants responsible for 1.3 billion gallons of un-utilized domestic biodiesel production capacity.

From an environmental and sustainability perspective, it can be argued that if our goal is to mitigate the effects of climate change by encouraging the use of low carbon fuels, and that we are also trying to demonstrate to the world our commitment to this effort, that we would want to encourage other countries that are producing biodiesel and RHD to actually use that fuel at home, rather than simply shipping it to the US to take advantage of our generous subsidies which might seem more appropriate to be targeted towards domestic producers. After all, climate change is a global problem and solutions need to be implemented on a global basis. It’s also unclear how long US legislators will continue to support subsidizing foreign producers in countries that are not themselves, at a minimum, fully participating in the effort at home.

A producer’s tax credit addresses some of these issues and plugs what many see as a gaping hole in the system. It encourages foreign producers to find a home for their product closer to where it’s produced – if that means lobbying their own governments to create their own domestic policies that support the use of low carbon fuels that would be a very positive development. A producer’s credit would drive demand for domestic production in the US which would ultimately allow un-utilized production capacity to be started or re-started, creating thousands of good-paying American clean-tech manufacturing jobs, often in disadvantaged communities. And by consuming ADFs closer to where it’s produced it will create a more sustainable and environmentally responsible utilization of resources.