Cantwell Vows to Overturn Notice 2007-37, Giving Tax Credit to Big Oil Companies

Sen. Maria Cantwell (D-Wash.) said April 19 that she and other members of Congress will work to overturn Internal Revenue Service Notice 2007-37, which expanded eligibility of a small refiner tax credit for making biodiesel to include large, integrated oil companies.

Cantwell, whose state is home to several small renewable fuel facilities, said some major oil companies "were going around to the back door of the White House" to get a favorable ruling.

The ruling, released April 2 (63 DTR G-1, 4/3/07 ), was expanded beyond what Congress intended, she said.

Cantwell made the comments during a Senate Finance Committee hearing that focused on possible tax incentives that could be included in legislation later this year to boost alternative fuels and vehicles.

Tax Legislation Weeks Away

Regarding the schedule for drafting an energy tax package, Senate Finance Chairman Max Baucus (D-Mont.) told reporters that he intends to conduct several more hearings in the weeks ahead and legislation is "unlikely" to be ready before the Memorial Day recess.

Democratic staff said there are still several technical issues to work through, but members are keen to produce a bill later this year.

During the hearing, Baucus expressed his desire to expand tax incentives that will boost the volume of renewable fuels in order to reduce U.S. oil dependence. He noted that Congress passed energy legislation in 1992 that set a goal of replacing 10 percent of petroleum-based fuel by 2000 and 30 percent by 2010.

That goal remains out of reach. Today, biofuels account for only 3 percent of transportation fuel and "there's no way that we'll get to 30 percent in the next three years," Baucus said.

Witnesses included James Woolsey, vice president, Booz Allen Hamilton, who raised national security concerns; and Vinod Khosla, cofounder of Sun Microsystems and founder of Khosla Ventures, who said Congress should set a very high mandate for renewable fuels. Also speaking were Robert Farrington, engineer with the National Renewable Energy Laboratory; Bruce Dale, Michigan State University engineering professor; and Jay Debertin, vice president of CHS Inc., a Minnesota cooperative.

Agriculture, Oil at Odds Over Notice

Cantwell suggested that, if the current IRS interpretation making the credit available to major oil producers stands, small biodiesel refiners will be put out of business and the goal of increasing the nation's already tight refining capacity will not be realized.

Cantwell is not alone in expressing her concern over expansion of the credits, enacted under the Energy Policy Act of 2005.

House members from the Midwest, including Rep. Kenny Hulshof (R-Mo.), said they intend to look for legislative options to fix the problem.

The National Biodiesel Board, a trade association based in Jefferson City, Mo., is leading the charge in Congress to overturn the ruling.

Joe Jobe, president of the trade group, said in an April 13 statement that the ruling makes for "bad energy policy, bad agricultural policy, and bad fiscal policy."

"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 original blender's biodiesel tax credit was established by Congress in the JOBS Act of 2004.

Jobe said the $1 per gallon tax credit has been the primary stimulant for the dramatic four-fold increase in biodiesel production. Today, there are 105 plants capable of producing 864 million gallons of domestic biodiesel, he said.

Controversial Provision

The tax credit was extended and modified in the 2005 energy bill with a provision to include a specific chemical process called thermal depolymerization (TDP). The provision was not debated and the congressional intent was left to the Treasury Department to decipher.

The TDP process is a new technology to turn hazardous wastes, plastics, and food wastes like poultry offal and carcasses into a boiler fuel.

The biodiesel trade group contends IRS has now ruled in the oil companies' favor to expand the TDP definition to include the conventional petroleum refining process.

The oil companies will be able to add raw vegetable oils and animal fats at their existing refineries and qualify for the credit.

Tax Credit Beneficiaries

The National Biodiesel Board said the ruling was made to benefit ConocoPhillips and Tyson Foods, which announced April 16 an agreement to make a "renewable" diesel fuel by adding beef, pork, and poultry byproducts and animal fat to the oil refining process.

In its notice, IRS said it consulted the Department of Energy and the decision was made to give the definition of the TDP process a generic and broad interpretation.

The tax credit is retroactive to Jan. 1, 2006.

Texts of Jobe's statement and the prepared remarks of hearing witnesses Woolsey , Khosla , Farrington , Dale , and Debertin are in TaxCore.

By Lynn Garner