Last month, the Farm Bill became law when Congress successfully overrode the President's veto. Among its many provisions, the legislation reauthorizes the Commodity Credit Corporation (CCC) Bioenergy Program and provides $300 million from Fiscal Year (FY) 2009 through FY 2012 in funding for the initiative. This important program provides support to biodiesel producers to help offset high feedstock costs. In addition, the Farm Bill also continues funding for the USDA Biodiesel Education Program to increase the awareness and ultimately utilization of biodiesel.

In addition, the U.S. House approved H.R. 6049, the Energy and Tax Extenders Act of 2008. Among its many provisions, the legislation extends the biodiesel tax incentive through Dec. 31, 2009. Under the bill, the $1 per gallon incentive would be available for all biodiesel, regardless of feedstock. H.R. 6049 also shuts down the "splash and dash" loophole that currently allows foreign-produced fuel to enter the U.S, claim the biodiesel tax incentive, and be shipped to a third country for end use. Lastly, H.R. 6049 properly defines the renewable diesel tax incentive as it applies to co-processed renewable diesel.

Two weeks ago, both houses of Congress voted to override a presidential veto of the 2008 Farm Bill, making 14 of the 15 titles of the legislation "the law of the land," according to Senate Agriculture Committee Chairman Tom Harkin (D-IA). The House voted Wednesday 316-110 to override the veto, just two votes short of the majority that approved the measure last week. The Senate followed Thursday, voting to override by an overwhelming count of 82-13. But the Senate vote came only after House leaders learned Wednesday night that because of a clerical error in enrolling the bill sent to the White Housed, the measure vetoed by President Bush was missing the 36-page trade title, one of the 15 titles that make up the farm bill.

The snafu created partisan controversy over how to proceed. The House even pushed the entire bill through again on Thursday morning. But after the Senate voted to override the bill that the president vetoed, Harkin said, "I just want to make sure that there's no doubt in anyone's mind now. Fourteen of the 15 titles in this farm bill are now law." Congressional leaders said parliamentarians assured them that they could the enact the 14 titles of the bill by overriding the presidential veto and then later pass as a separate bill the missing trade title when lawmakers return from their Memorial Day recess next month.

One of the 14 titles of The Farm, Nutrition and Bioenergy Act of 2008, the energy title, will offer significant incentives to promote second generation ethanol. The incentives include funding for loan guarantees to commercial scale bio-refineries for advanced biofuels; a program to encourage farmers to establish and grow biomass crops in areas around biomass facilities (see related story); and continuation of research and development through the biomass energy research program administered jointly by the Departments of Agriculture and Energy. The bill more than doubles current funding, providing $118 million for research.

The measure also includes a cellulosic biofuels production tax credit of up to $1.01 per gallon through 2012. However, a tax bill adopted House Ways and Means Committee last week also provides the $1.01 cellulosic biofuels credit and extends it through 2015, raising the possibility that the shorter-term, farm bill credit provision will be dropped.

Specifically, the energy title of the new farm bill:

•Provides an overall $1 billion to fund programs in the energy title that will leverage renewable energy industry investments in new technologies and new feedstocks.

•Includes $320 million in loan guarantees for biorefineries producing advanced biofuels.

•Provides $35 million for a new program to help existing ethanol facilities reduce their fossil fuel use.

•Creates the Rural Energy for America Program (REAP) to provide $250 million in grants and loan guarantees for agricultural producers and rural small businesses to purchase renewable energy systems and make energy efficiency improvements Includes grant funds for organizations with energy expertise to assist agricultural producers and rural small businesses in performing energy audits. Assists agricultural producers and rural small businesses in planning and preparing feasibility studies for projects supported by the Rural Energy for America Program.

• Provides $120 million for the Biomass Research and Development Program Coordinates research and development activities, including improvements in feedstock development and the efficiency of biofuel production.

•Funds the Bioenergy Program at $300 million Provides incentives for expanding production of advanced biofuels made from agricultural and forestry crops and associated waste materials, including animal manure and livestock/food processing waste.

•Establishes a sugar-to-ethanol program. Provides sugar to biofuel producers at competitive prices. Specifies that sugar would be provided for biofuel production only during times of excess sugar supply.

•Provides $9 million for the Biobased Markets Program authorizing eligible producers to label biobased products as a "USDA Certified Biobased Product." This provision also sets a federal procurement preference for biobased products, to encourage the purchase of products that are comprised of a greater percent of biobased material.

•Funds the Biodiesel Education Program with $5 million to help educate government and private owners of vehicle fleets about the benefits and technical aspects of biodiesel.

Key provisions in the conservation title of the new farm bill, which increased total spending on conservation programs by $7.9 billion, include an extension of the Conservation Reserve Program (CRP), authorizing 32 million acres to be enrolled in the program from 2010-2012; an increase in funding for Environmental Quality Incentives Program (EQIP) by $3.4 billion; and an extension of the Conservation Security Program (CSP), providing $1.1 billion in new funding to enroll nearly 13 million acres per year. The bill also expands lands eligible for the CSP to include private forests, and it restructures the program to provide conservation stewardship payments that encourage producers to implement additional conservation practices.

In addition to the cellulosic biofuels production tax credit, another provision of the tax title of the new farm bill significant to renewable energy interests includes a reduction in the ethanol excise tax credit for blenders. The bill reduces the 51-cents-per-gallon incentive for ethanol to 45¢ per gallon, beginning with calendar year 2009, subject to the Treasury Department and EPA determining that 7.5 billion gallons of ethanol (including cellulosic ethanol) were produced in or imported into the United States in 2008. Failure to reach the ethanol threshold would delay implementation of the reduction in the credit.

Another tax title provision calls for a comprehensive biofuels study. The bill calls on the National Academy of Sciences to do an analysis of current scientific findings relating to the future production of biofuels and the domestic effects of an increase in the production of biofuels.

For more on the 2008 Farm Bill, including title-by-title fact sheets, the conference report and the bill managers' report, go to http://agriculture.house.gov/inside/FarmBill.html.

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In addition; on May 15, 2008, the House Committee extended the Biodiesel Tax Credit and cut the

Co-Processing Credit

During farm bill conference negotiations over the past several months, a provision in the tax package extending the $1/gal biodiesel tax credit by two years was removed in an apparent attempt to lower the bill's overall cost. Now a similar provision -- although providing for only a one-year extension -- has made its way onto an energy and tax extenders bill that the House Ways and Means Committee passed earlier today.

H.R. 6049, introduced by Committee Democrats and approved 25-12, provides nearly $20 billion in tax incentives for renewable energy, carbon capture and sequestration demonstration projects, energy efficiency and conservation.

Specifically on biofuels, the bill includes:

--A new $1.01 tax credit for the production of cellulosic biofuels (defined as a liquid fuel produced from any lignocellulosic or hemicellulosic matter and meets EPA registration requirements, expanded from previous, similar provisions only for cellulosic ethanol) through Dec. 31, 2015. The provision is similar to one included in the farm bill, however that tax credit is only through 2012.

Additionally, the tax credit in HR 6049 would only qualify for U.S. production and used as a fuel in the U.S.

--Expansion of property allowance to produce cellulosic ethanol. Under current law, taxpayers are allowed to write off 50% of the cost of facilities that produce cellulosic ethanol if the plants are in service before Jan. 1, 2013. "Consistent with other provisions in the bill that seek to be technology neutral, the bill would allow this write off to be available for the production of other cellulosic biofuels in addition to cellulosic ethanol," the Ways and Means Committee said in a summary document.

--One-year extension of the $1/gal biodiesel tax credit, the small biodiesel producer credit of 10cts/gal and the $1/gal production tax credit for diesel fuel created from biomass, all through Dec. 31, 2009. The provision would also eliminate "current-law disparity" by allowing agri-biodiesel (which currently receives 50cts/gal) to receive the same, full $1/gal tax credit as other biodiesel, and eliminates the requirement that renewable diesel must be produced using a thermal depolymerization process. "As a result, the credit will be available for any diesel fuel created from biomass without regard to the process used so long as the fuel is usable as home heating oil, as a fuel in vehicles or as aviation jet fuel," the summary document noted. However, the $1/gal biodiesel tax credit is limited to diesel fuel produced solely from biomass, so diesel fuel that is created by co-processing biomass with other feedstocks (e.g., petroleum) would only qualify for a 50cts/gal tax credit.

Additionally, the biodiesel tax credit would only qualify if the fuel is produced in the U.S. for consumption in the U.S.

--A 6ct/gal reduction in the ethanol tax credit, to 45cts/gal, for the year after which the U.S. produces at least 7.5 billion gallons of ethanol. This is the same provision that was included in the farm bill package.

--Extension and an increase of the alternative refueling stations tax credit. The bill increases the 30% alternative refueling property credit (capped at $30,000) to 50% (capped at $50,000), to businesses that install alternative fuel pumps. The credit is extended through 2010.

--An analysis conducted by the National Academy of Sciences of current scientific findings relating to the future production of biofuels and the domestic effects of a dramatic increase in the production of biofuels. An initial report is due six months after the bill's passage and a final report is due one year after passage.

Of the amendments considered during today's committee mark-up, only one dealt with biofuels. Rep. Pete Stark's (D-Calif.) amendment would have eliminated the ethanol tax credit, but it failed by a vote of 8-30.

The National Biodiesel Board (NBB) praised the committee's action to extend the biodiesel tax credit. "The biodiesel tax incentive is working, and the committee's decision to support biodiesel will help our industry improve America's energy independence by displacing foreign petroleum with clean- burning, domestically produced fuel," said NBB CEO Joe Jobe.
Mike McAdams, executive director of the Advanced Biofuels Coalition, has been a strong advocate for feedstock neutrality on biofuel-related provisions.

He said he was pleased with the direction the committee took, although was disappointed that the co-processing language for biodiesel "was not afforded the same level of support" as conventional biodiesel.

It was immediately unclear how both Tyson Foods and ConocoPhillips -- which in 2007 announced plans to produce renewable diesel from animal fat, a fuel chemically different from biodiesel that can be produced directly at refineries and shipped through pipelines -- felt about the co-processing tax reduction.

Earlier in 2007, the Internal Revenue Service ruled that refiner-based renewable diesel was eligible for the $1/gal biodiesel blenders' tax credit, so in essence, the language included in today's bill slashes the tax credit by half for those using co-processing.

Sources closely following the bill say the full House could vote on it next week and if successful, be voted on in the Senate next month.