Tax break fuels a lobbying fight over alternative energy

An IRS decision to expand eligibility for an alternative fuel tax credit has triggered a lobbying fight that features a major oil company, a large chicken producer and a trade association of soap and detergent manufacturers.

The IRS last month said a $1-a-gallon “renewable diesel” tax break included as part of the Energy Policy Act of 2005 could apply to a method employed by oil giant ConocoPhillips of adding animal fats to its traditional diesel refining processes.

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Last week Rep. Lloyd Doggett (D-Texas) introduced a bill to repeal the ruling and narrow the tax break’s scope to what bill supporters said Congress originally intended. The measure has 54 cosponsors.

Rep. Roy Blunt (R-Mo.) had added the break in conference committee to support a local plant that turned turkey offal into boiler fuel. In a letter to the IRS, Blunt urged the agency to rule against efforts to expand eligibility for the break.

The more open definition could increase the cost of the break by hundreds of millions of dollars and, critics fear, squeeze out more smaller rival biodiesel producers that use soybean oil and animal fats to make fuels.

With Congress also contemplating measures that would increase alternative-fuels production to 36 billion gallons a year — fewer than 6 billion gallons are now produced annually — a number of groups are looking to join the congressional debate over how to supplement traditional fossil fuel supply.

Companies that stand to benefit from the IRS decision, for example, have formed a new coalition, the Advanced Biofuels Coalition, to block the Doggett bill and support other measures that encourage “technology neutral” alternative-fuels production. The group is being managed by Michael McAdams of Hart Energy Consulting.

Among the bills the group supports is a measure offered by Sen. Jeff Bingaman (D-N.M.), chairman of the Energy and Natural Resources Committee, which sets the 36 billion gallon goal.
Tyson Foods is a member of the new group. The meat producer has an agreement to supply animal fats to Conoco to produce as much as 175 million gallons of renewable diesel, and therefore stands to benefit from the IRS decision.

Supporters say the addition of animal fats displaces the need for additional oil imports and has a number of environmental benefits. Therefore, they argue, the process should be supported by a tax break.

If Congress’s intent was to “foster renewable technology innovation and commercialization, then there must be parity among the technologies and feedstocks that are going to be utilized,” Conoco spokesman Bill Graham said.

But Doggett said the break threatens to turn “green-energy initiatives” into a “public boondoggle” by giving millions of tax dollars to the oil company.

The National Biodiesel Board, a group of biodiesel producers, which also enjoy a separate $1-a-gallon tax break, backs the Doggett bill.

Board members fear oil companies will buy up large volumes of feedstock and bid up the price of animal fats. They say their renewable energy industry is more deserving of federal help because the fuel has more environmental benefits and increases fuel supplies.

Biodiesel producers are building new production plants. But the process oil companies would use doesn’t “require investment in additional refining capacity or bringing additional new fuel to the supply,” the chief executive of the National Biodiesel Board, Joe Jobe, said.

Raising the cost of fat has also attracted the opposition of the Soap and Detergent Association. Animal fats are sometimes used to make soap.

The industry already is under pressure as farmers use more tallow — a type of animal fat — to feed livestock instead of traditional food sources like corn, whose prices have been buoyed by new corn-ethanol production demands.

In this economic food chain, the soap industry could soon be extinct, according to Dennis Griesing, vice president of government affairs for the Soap and Detergent Association.

“If they start buying up animal fats, it can suck it all up, and we’re dead,” Griesing said.
“We’ve been here forever, and we’re dead.”

Jeff Webster, general manager of renewable energy at Tyson Foods, called renewable diesel a “second-generation fuel” deserving of support.

“You need all of these technologies,” he said.

Several livestock producer groups, including the National Pork Producers Council and the National Chicken Council, back the IRS ruling.