In the 11th hour, Congress passed H.R. 8, or the “fiscal cliff bill”. While the biggest headlines were about preserving the Bush era tax rates for individuals earning up to $400,000 or couples earning $450,000, several large pieces of legislation went into the final package, including energy titles and the Farm Bill extension.
While the bill will keep some sectors of the energy industry afloat, and keep milk prices from immediately hitting $6/gallon, Congress continued to “kick the can down the street,” and no multi-year package or long-term solutions for the nation’s energy and food supply were seriously considered.
A nine month extension of existing Farm Bill programs was passed as part of the final package. Two major issues remain: the funding included is for Fiscal Year 2013, which ends on September 30; and while the Energy Titles were reauthorized, no mandatory funding was provided.
The exclusion of mandatory funding came as a surprise for many. Senate Agriculture Committee Chairwoman Debbie Stabenow has been a strong supporter of mandatory funds for energy programs, and the House version of the one year extension contained mandatory money for the Energy Title, including over $100 million between REAP and the Bioenergy for Advanced Biofuels programs. ERG has been told that Mandatory Energy Title funds were negotiated out of the package by the Senate Minority Leader.
In addition, several expired or expiring energy tax provisions were extended as part of the deal:
Energy Efficiency – The package includes tax credits for purchases of replacement windows, doors and other items for installation into existing homes to make them more energy efficient.
Biomass – Section 25c includes a 10 percent tax credit for the purchase of wood pellet stoves up to $300. This credit was allowed to expire at the end of 2011 and H.R. 8 extends it through 2013, but also applies it retroactively to December 31, 2011.
Additionally, the Section 45 production tax credit for open loop biomass facilities was modified. The credit has historically been based on a “placed in service” date for eligibility. Under H.R. 8, the credit will now be based upon the date facility construction is commenced.
Cellulosic biofuels producer tax credit – Under current law, facilities producing cellulosic biofuel can claim a $1.01 per gallon production tax credit on fuel produced before the end of 2012. This provision was created in the 2008 Farm Bill. The provision would extend this production tax credit for one additional year, for cellulosic biofuel produced through 2013.
The cellulosic biofuel producer credit is redesignated “second generation biofuel producer credit” and is (i) expanded to apply to liquid fuel derived from cultivated algae, cyanobacteria, or lemna and (ii) extended to apply to qualified fuel production before January 1, 2014. This provision is estimated to cost $59 million over ten years.
Incentives for biodiesel and renewable diesel – The bill extends for two years, through 2013, the $1.00 per gallon tax credit for biodiesel, as well as the small agri-biodiesel producer credit of 10 cents per gallon. The bill also extends through 2013 the $1.00 per gallon tax credit for diesel fuel created from biomass. This provision is estimated to cost $2.181 billion over ten years.
The biodiesel tax incentive expired on Dec. 31, 2011. A recent study found that the industry would have produced an additional 300 million gallons this year with the tax incentive in place. That would have supported some 19,213 additional jobs, for a total of 83,258 jobs supported by the industry nationwide, according to the study, conducted by Cardno ENTRIX, an international economics consulting firm.
Cellulosic biofuels bonus depreciation – Under current law, facilities producing cellulosic biofuel can expense 50 percent of their eligible capital costs in the first year for facilities placed-in-service by the end of 2012. This provision was created in the 2008 Farm Bill. The provision would extend this bonus depreciation for one additional year for facilities placed-in-service before the end of 2013 – and is also extended to algae producers.
The proposal also expands the definition of qualified cellulosic biofuel production to include algae-based fuel. This provision is estimated to cost less than $500,000 over ten years.
Wind – The deal included a one-year extension of the wind energy production tax credit until January 1, 2014. The American Wind Energy Association said that the extension will save 37,000 jobs and revive business at 500 wind factories.
Solar – The 1603 credits were preserved. The Treasury Department had previously announced that the mandatory, across-the-board spending cuts would mean that 1603 Grants issued by the Department would be cut by 7.6% beginning on January 3, 2013. However, this new legislation prevents the sequestration from taking effect until March 1st.