Everyone is talking about alternative fuels and here is an example of two companies teaming up to do just that and having all incentive taken away from doing it. Who does Washington think is going to develop this alternative fuel, Joe sixpack. Like it or not a refinery that produces diesel can not produce biodiesel without adding new process equipment and its not cheap.

September 26th. -Houston Chronicle

"An energy tax package Congress is cooking up this week may fry ConocoPhillips' production of diesel fuel from Tyson Foods' leftover animal fat.

Houston-based ConocoPhillips and Springdale, Ark.-based Tyson, the world's largest chicken, beef and pork processor, teamed up last year to use the oil company's existing refineries to produce renewable diesel fuel from animal fat.

Tyson sends beef tallow from its rendering plant in Amarillo to ConocoPhillips' refinery in nearby Borger, where it is used as a feedstock to make diesel fuel.

This year the partners have produced 4 million gallons of diesel fuel with this method. Eventually, the plan was to ramp up to about 175 million gallons annually, with ConocoPhillips to spend $100 million to upgrade its facilities to handle the animal fat.

The venture gets a $1-per-gallon federal tax credit for diesel produced in this manner.

But the House and Senate have been working on separate tax packages designed to encourage energy production from renewable sources. While the two packages differ, both bills would lower the tax credit to 50 cents per gallon.

That could kill the project.

"Without the current $1-per-gallon credit, it is unlikely this venture will remain economically viable," Tyson spokesman Gary Mickelson said in an e-mail.

ConocoPhillips spokesman Bill Tanner agreed that passage of the legislation "would likely render the project marginally economic."

The tax credit was first inserted into the Energy Policy Act of 2005 at the behest of House Minority Whip Roy Blunt, R-Mo., to help a renewable-energy company in his district.

While the original language of the bill may have been written to target that operation, ConocoPhillips and Tyson successfully argued before the Internal Revenue Service that the tax credit should apply to their project, too.

That IRS decision angered a number of lawmakers on Capitol Hill, including Rep. Lloyd Doggett, D-Austin, who vowed to keep the partners from enjoying what he called a "dollar-per-gallon windfall from simply throwing a dab of grease into ordinary petroleum."

ConocoPhillips and Tyson also faced opposition from the National Biodiesel Board, which represents companies that primarily use soybean oil for fuel.

Manning Feraci, vice president of federal affairs for the board, called the effort to limit the credit to 50 cents per gallon for ConocoPhillips and Tyson "consistent with common-sense energy and tax policy."

But the partners argue that the renewable diesel they are producing burns cleaner than conventional diesel and helps supplement the fuel supply.

ConocoPhillips' Tanner said:

"We're disappointed that Congress is willing to pass legislation that picks energy winners and losers and that fails to recognize the need for a variety of supplies from all sources, including alternatives, renewables as well as conventional oil and gas."

Tyson's Mickelson argued the legislation "will only serve to limit the expansion and availability of alternative fuels and will hurt the ability of livestock farmers and ranchers to participate in the renewable energy business."

Whether lawmakers can reach agreement on a tax package before leaving town at the end of the week remains an open question.

The Senate approved its tax package on Tuesday. And since the Senate had had so much trouble passing the bill -- it took nine tries -- Senate Majority Leader Harry Reid, D-Nev., urged the House to pass the Senate version.

Instead, House leaders broke up the Senate package and began stripping out provisions, including language to encourage production of diesel and other fuels from coal.

The House is expected to vote on its tax package today.

If lawmakers take no action, the tax credit will expire at year-end.

Copyright (c) 2008, Houston Chronicle. Distributed by McClatchy-Tribune Information Services.