H.R. 927, Biodiesel Tax Credit

Sponsor: Representative Michael C. Burgess, M.D. (TX-26)

Introduced: February 8, 2007

Status: Referred to House Committee on Ways and Means

Why it is needed:

Today the U.S. imports nearly 60% of its oil and this number is expected to increase to 75% by 2010. Most of this oil comes from the Middle East and politically unstable nations such as Algeria, Nigeria and Venezuela. Reliance on foreign energy sources undermines our economy and our national security. Home-grown fuels, such as biodiesel, can help move the United States towards greater energy independence.

Biodiesel production is currently more expensive than conventional diesel. In 2004/05 it cost $0.67 to produce a gallon of petroleum-based diesel, compared with about $2.54 to produce a gallon of biodiesel from soybean oil, and $1.41 from restaurant grease. Biodiesel appears to have a significantly better net energy balance than ethanol, according to a joint USDA-DOE 1998 study that found biodiesel to have an NEB of 3.2 -- (i.e. 220% more energy was returned from a gallon of pure biodiesel than was used in its production). In contrast, petroleum diesel has an NEB of 0.83 -- (i.e.17% less energy)

The American Jobs Creation Act provided an "agri-biodiesel" tax credit of $1.00/gallon for biodiesel from virgin agricultural products and $0.50/gallon for biodiesel from recycled grease through 2006. In addition, it provides an excise tax credit for biodiesel blends. Producers are eligible for one credit or the other, but not both. EPAct of 2005 extended the credits through 2008.

Fry Oil to Fuel

Biodiesel Industries, located in Denton, Texas runs a "Fry Oil to Fuel" program, which recycles used vegetable oils into biodiesel.

• Over 130 restaurants, schools, businesses, large kitchens, etc. have signed up to participate.

• According to Biodiesel Industries, if every U.S. metropolitan area were to implement a similar program, we could reduce oil imports by nearly 10%.

· Small restaurant owners typically have to pay for grease collection, but as part of the "Fry Oil to Fuel" program, both the recycling service and the collection container are provided at no cost.

· Biodiesel Industries is collecting used cooking oil at a cost of about $2.80 per gallon, which they then process into a biodiesel that they sell at around $2 per gallon wholesale.

What H.R. 927 does: Specifically, it doubles the tax credit for making biodiesel from recycled restaurant grease from $.50/gallon to $1.00/gallon, thereby encouraging its production. This reduces petroleum use without removing arable land from food production.