Congress and Tax Legislation: It is Not Just About Biofuels.

By Brent Erickson, Head, Industrial & Environmental Section, Biotechnology Innovation Organization
Special to The Digest

It is clear that industrial biotechnology innovation is unlocking the potential to produce renewable building blocks for everyday products. The United States has become a leader in renewable chemical technology and has a wealth of low-cost, renewable feedstocks. BIO has led the effort to prompt Congress to recognize the important and emerging biobased sector. Congress’ current effort to reform taxes can revitalize U.S. manufacturing and grow the economy by including legislation supporting production of renewable chemicals.

The biobased economy involves the entire value chain from harvesting organic biomass and waste, to producing renewable chemicals and biofuels, and to manufacturing biobased products. At the heart of this economic activity, industrial biotechnology transforms feedstocks into valuable products, while improving sustainability. BIO estimates that the U.S. biobased economy currently generates $135.4 billion in economic activity and employs nearly 1.7 million Americans. Because this economic activity creates opportunities and jobs in service and other industries, the overall boost to the U.S. economy is $435 billion and 4.63 million jobs.

The United States has a competitive advantage in building the biobased economy. Congress should seek to preserve that lead. U.S. companies and universities have developed the most advanced technology and intellectual property in the world for biobased manufacturing and new feedstocks. The global economic value of biofuels, renewable chemicals and plastics, enzymes and biobased materials is more than $203 billion. The United States generates 57 percent of that value, or more than $116 billion. Investment in renewable chemicals will pay strong dividends in the future by maintaining U.S. leadership in clean energy and improving our trade balance.

At a minimum, Congress must ensure that the tax code presents a level playing field for renewable chemical technologies. Various tax incentives are critical to attract capital investment for renewable chemicals and biobased products, especially since tax credits are available to other incumbent U.S. sectors. Further, it is more difficult for renewable chemical companies to develop projects in the United States when other nations offer more attractive investment incentives.

Senators Chris Coons (D-DE) and Jerry Moran (R-KS) have introduced legislation that would allow renewable chemical companies to operate as publicly traded Master Limited Partnerships (MLP). Senator Orrin Hatch (R-Utah), Chairman of the Senate Finance Committee, has offered an amendment to current tax reform legislation based on this bill. Fossil fuel companies already use this MLP structure to reduce their tax liabilities. Renewable chemical companies and others should be able to use the same rules to increase their liquidity and access to lower cost capital. Access to capital is essential to the success of emerging industries, particularly those building new infrastructure. Congress should adopt Senator Hatch’s amendment and help U.S. renewable chemical and advanced biofuel companies compete for investment dollars.

Congress should also open existing renewable energy, manufacturing and environmental tax credits to renewable chemical producers. Renewable chemicals and biobased plastics ease reliance on petroleum, increase energy security, and reduce greenhouse gas emissions just like other renewable energy projects. For this reason, BIO has helped formulate and push a renewable chemical tax credit proposal. Congress should consider including the bipartisan Qualifying Renewable Chemical Production or Investment Tax Credit Act – legislation already introduced this year in both the House and Senate – as an amendment to tax reform legislation. Like current renewable electricity production credits, this legislation would provide general business credits for a limited period to new renewable chemical production facilities.

This tax incentive is widely supported by industry. Senator Debbie Stabenow (D-Mich.) introduced this legislation in the Senate this year, with Republican co-sponsor Senator Susan Collins (R-Maine). Welcoming the bill’s introduction, former Pennsylvania Governor Mark Schweiker, who is currently Senior Vice President of Philadelphia area-based Renmatix, commented, “There is growing momentum for the biobased industry to commercialize cost-competitive pathways to bio-materials and renewable chemicals. The economy-building potential of this bill is tremendous and will stimulate the nascent U.S. renewable chemicals market, especially in rural America.” Hugh Welsh, President of DSM in Parsippany, N.J., added, “This legislation will further support employment, economic growth and continue to encourage global companies like DSM to make additional investments in the United States.”

Mike Belliveau, Executive Director of Environmental Health Strategy Center in Maine, also voiced support for the tax credit, saying, “Demand for climate-friendly biobased products is high because people want safer, sustainable products. A level playing field in federal tax policy will encourage more companies to replace fossil petroleum with renewable carbon in everyday products.” And my colleague Stephen Rapundalo, president and CEO of MichBio, added, “Agriculture and manufacturing are two of the biggest sectors in Michigan’s economy.” The legislation “can help companies revitalize the manufacturing sector, generate new markets for agricultural producers, and create new jobs.”

Congress should also seek to expand Section 45Q of the Tax Code to include innovative new carbon capture and utilization (CCU) technologies, which recycle carbon to create advanced biofuels, renewable chemicals, food and feed, and other useful products. Currently, Section 45Q provides an incentive for the adoption of carbon capture and sequestration (CCS) technologies, as well as for enhanced oil and natural gas recovery projects. Senator Heidi Heitkamp’s (D-N.D.), Furthering Carbon Capture, Utilization, Technology, Underground Storage, and Reduced Emissions (FUTURE) Act, would expand 45Q to include CCU technologies. If adopted as an amendment to tax reform, the legislation could incentivize utilities and other industries to invest in technology that captures carbon instead of emitting it into the atmosphere and turns it into a value-added output that can be reused in manufacturing.

Renewable chemicals and biobased products grow our economy and impact everyday products, from car parts, cleaning products and soaps to insulation materials, plastics, foams, fibers, and fabrics. And beyond that renewable chemical projects continue to create new jobs in every state and region of the United States.

Congress can best achieve its goal of revitalizing U.S. manufacturing by building a biobased economy that goes beyond biofuels production. To that end, tax reform legislation should include incentives for companies at the forefront of the biotech industry’s efforts to develop renewable chemicals, biobased products and advanced biofuels. These tax incentives would put innovative companies on par with incumbent fossil energy and chemical industries, helping them to commercialize cost-saving and environmentally friendly innovations. BIO is working hard to urge Congress to pass these tax credits and you can help by contacting your members of Congress and urging them to Support the Coons-Moran MLP legislation and the Stabenow–Collins renewable chemical tax credit bill.