2010 Tax Bill Extends Support for Ethanol and Biodiesel Production

On December 17, 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the "Act") was signed into law by President Obama.  The Act was most widely publicized for its extension of the 2001 and 2003 tax cuts for another two years.Within the Act, however, were a number of provisions that extended or revived tax credits related to renewable energy.  Among the provisions extended were tax credits related to ethanol and biodiesel production.  Below is a brief summary of these developments and a discussion of the status of those credits under the new law.

Volumetric Ethanol Excise Tax Credit

The Volumetric Ethanol Excise Tax Credit (VEETC) provides a tax credit of $0.45 per gallon of ethanol for gasoline suppliers who blend ethanol with gasoline.  The credit was initially established in 2005 and was set to expire at the end of 2010.  Under the Act, the credit was extended through December 31, 2011. 

Small Ethanol Producer Credit

The small ethanol producer credit provides a credit of $0.10 per gallon of ethanol produced by certain small ethanol producers whose production capacity is below 60 million gallons per year.  The credit was established in 1990 and has been extended by Congress several times.  The Act extended the credit through December 31, 2011. 

Biodiesel Tax Credit

The biodiesel tax credit is a $1.00 per-gallon credit that applies to producers of biodiesel or diesel/biodiesel blends.  The credit was established in 2005 and actually had expired at the end of 2009.  The Act retroactively applied the credit for 2010 and extended it through December 31, 2011. 

Small Agri-Diesel Producer Credit

The small agri-diesel producer credit is a $0.10 credit per gallon of "agri-diesel" that is produced by a qualifying taxpayer.  The credit is only available for the first 15,000,000 gallons produced by a qualifying taxpayer per year.  Like the biodiesel tax credit, the small agri-diesel producer credit expired at the end of 2009 but was reinstated retroactively by the Act.  The credit was also extended through December 31, 2011. 

Renewable Diesel Tax Credit

The renewable diesel tax credit applies to producers of biomass-based diesel fuel (or producers of blends of diesel and renewable biodiesel.  The credit is $1.00 per gallon of qualifying fuel.  This tax credit expired at the end of 2009 but was reinstated retroactively by the Act.  The credit was also extended through December 31, 2011

As can be seen above, the Act extended a number of beneficial tax cuts for the ethanol and biodiesel industries, but the extensions were only through 2011.  Congress will therefore need to address these credits again before the end of the year, or the credits lapse.