Rep. Lloyd Doggett, D-Austin, plans to introduce legislation that would throw out the Treasury Department's interpretation of language embedded in the Energy Policy Act of 2005. That language would allow Houston's ConocoPhillips and Springdale, Ark.-based Tyson to take a $1-per-gallon tax break on diesel made from animal waste.
"There appears to be abuse that demands legislative correction," Doggett said in a prepared statement.
Doggett, a member of the tax-writing Ways and Means Committee, wants to return to the more limited interpretation many lawmakers had in mind when the bill was passed.
That's unwelcome news for the two companies, which announced plans to produce 175 million gallons — or 4.2 million barrels — of diesel fuel annually from beef, pork and poultry fat at ConocoPhillips' refineries.
That means their renewable diesel business would enjoy a tax credit totaling about $175 million a year.
ConocoPhillips' Chief Executive Officer James Mulva warned when the deal was announced last Monday that without the tax credit, the renewable diesel venture "wouldn't be commercial."
"With the tax credit, it's just barely commercial," Mulva said.
Jeff Webster, general manager of Tyson's Renewable Energy Division, noted that the cost of using animal fat as a feedstock is about $2 a gallon, or about $84 a barrel.
That compares with crude oil futures running above $63 a barrel on the New York Mercantile Exchange.
The $1-per-gallon tax credit, however, would bring the feedstock cost for animal fat down to about $1 a gallon, or $42 a barrel.
"In general, the feedstock cost is the big driver of your overall costs, as much as 75 percent of your cost structure," Webster said.
Asked about the effort to change the interpretation, ConocoPhillips spokesman Bill Graham noted: "With any repeal, you're changing the economics for the manufacturing of the renewable diesel.
"If it is repealed and maintained for other forms of alternative energy, then what you're doing is picking and choosing between alternative energies. And we don't think that's sound public policy."
President Bush has called on the nation to boost the amount of renewable and alternative fuels the U.S. uses each year to 35 billion gallons.
To meet that kind of goal, you'll need a "diversity of fuels," Graham said.
Tyson spokesman Gary Mickelson said denying the companies the right to use the tax credit "will only serve to limit the expansion and availability of alternative fuels and also damage the ability of livestock farmers and ranchers to participate in the renewable energy business."
The language at issue was inserted into the massive energy bill passed two years ago by Rep. Roy Blunt, R-Mo. The act refers to a process known as "thermal depolymerization."
Biodiesel makers say the tax credit was supposed to help spur development of fuel from turkey offal and carcasses. Indeed, Changing World Technologies, a renewable energy firm with a plant in Blunt's district, uses that process to make fuel from turkey waste.
ConocoPhillips hired the firm Hunton & Williams to lobby on renewable energy issues. According to lobbying disclosure documents, ConocoPhillips paid Hunton & Williams $140,000 last year.
Blunt caught wind of that effort and sent a missive to U.S. Treasury Secretary Henry Paulson last September, insisting that a broad reading of that language "is not what we intended."
But earlier this month, the Internal Revenue Service issued Notice 2007-37. The ruling interpreted thermal depolymerization "generically," to refer to the breaking down of a large molecule into smaller molecules.
And that opened the door for ConocoPhillips and Tyson.
Rep. Joe Barton, R-Ennis, was chairman of the House Energy and Commerce Committee in 2005 and shepherded the energy bill through the House.
While noting the language was intended for farmers, startups and smaller entrepreneurs, Barton noted, "If some of the big boys comply and the end result is more alternative fuel, that's probably a good thing for the country."
Cal Hodge, president of The Woodlands-based fuels consulting firm A 2nd Opinion, applauded Treasury's decision: "If we're trying ... to reduce our dependence on foreign oil and have more homegrown energy sources, every bit of flexibility we can provide in getting bio- mass converted to usable forms of transportation is absolutely needed for this country."
A number of agricultural groups, including the National Cattlemen's Beef Association, the National Chicken Council and the Texas Cattle Feeder Association, have supported the broader interpretation. But the National Biodiesel Board, which represents companies that primarily use soybean oil to make fuel, argue language that would allow the large integrated oil companies to take advantage of the tax credit will hurt their emerging industry, while handing over taxpayer dollars to some of the nation's "richest companies."
Who will win the battle for votes on Capitol Hill could depend largely on whether the tax credit is generally perceived as a subsidy for Big Oil or an effort to help farmers and ranchers and foster production of an eco-friendly fuel.
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