September 23, 2008

 

US Senate bill could scuttle Tyson's clean-diesel project
       

 

A US Senate vote Tuesday (September 23, 2008) on tax legislation could end the partnership between ConocoPhillips (COP) and Tyson Foods Inc. (TSN) for production of cleaner diesel.

 

At US$1 per gallon tax credit, the project would have been able to generate as much as US$175 million in tax credits annually.

 

The Senate legislation would renew for one year the US$1 per gallon federal tax credit for biodiesel production, but would end it for the kind of renewable diesel made in the ConocoPhillips-Tyson deal.

 

Tyson's venture uses beef tallow, or fat, from its food-processing operations and blend it with diesel fuel, using ConocoPhillips' existing refinery facilities.

 

The product would still be eligible for a 50-cent-per-gallon federal alternative-fuel tax credit, but that would not be enough for the partnership to make a profit, according to company officials.

 

The House of Representatives has already passed legislation that would end the tax credit for the Tyson project.

 

Previous versions of Senate legislation - including a bill introduced as recently as Sept. 11 - would have preserved the project, but capped the credit at 60 million gallons per facility.

 

Critics, especially soap and detergent makers, argued that preserving the tax credit for the Tyson-ConocoPhillips project would further drive up prices for animal fats.

 

Biofuel subsidies have driven the price of tallow to 39 cents per pound, from around 16 cents per pound in 2006, according to the Soap and Detergent Association.

 

On Sept. 16, senators announced agreement on a broader US$17 billion package of tax incentives for renewable energy, which is expected to pass the Senate Tuesday (September 23, 2008). That version of the bill would eliminate the $1 per gallon credit for the Tyson-ConocoPhillips deal.

 

Besides soap makers, producers of biodiesel also protested against allowing the credit for the Tyson-ConocoPhillips project.

 

They argued that since the federal subsidy is meant to offset the cost of building new "greenfield" facilities to process the fuel additive, the subsidy would not apply to Tyson since it is using an existing facility from ConocoPhillips. 

 

Tyson countered their argument by saying that its renewable-diesel technology has several advantages over biodiesel that make it worthy of eligibility for the credit. For one, it can be transported over the existing pipelines for diesel fuels, saving the fuel used by trucks currently to transport biofuels.

 

Also, unlike other biofuels, Tyson's renewable diesel does not use a food-based feedstock so it would not be driving up food prices.

 

House and Senate leaders are aiming to complete work on the tax-incentive package by the end of this week. But that timetable will be challenging as the House and Senate would still need to resolve differences between the two packages.

 

Biodiesel production has soared since federal tax credits were enacted in 2004, from 25 million gallons up to about 500 million gallons last year. 
                      

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