[Congressional Record Volume 154, Number 119 (Monday, July 21, 2008)]
[Senate]
[Pages S6973-S6974]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. HARKIN (for himself and Mr. Lugar):
  S. 3291. A bill to amend the Internal Revenue Code of 1986 to treat 
certain income and gains relating to fuels as qualifying income for 
publicly traded partnerships; to the Committee on Finance.
  Mr. HARKIN, Mr. President, I am pleased to join with Senator Lugar in 
introducing the Biofuels Pipeline Act of 2008. This bill provides that 
the movement of biofuels by pipeline will receive the same tax 
treatment as petroleum-based fuels.
  Earlier this session, Congress adopted a Renewable Fuels Standard 
that will require us to consume 15.2 billion gallons by 2012, and 36 
billion gallons by 2022. Biodiesel and ethanol already have the 
capacity to meet a substantial share of our energy needs. In future 
years, second-generation ethanol from switch grass and other cellulosic 
feedstocks will further increase our liquid fuel supply.
  But it is not enough to establish renewable fuels standards and 
mandates in order to spur production. We also need to clear the way for 
development of the infrastructure for storing, transporting, and 
marketing vast new quantities of renewable fuels.
  In this regard, we have a problem. The lion's share of our renewable 
fuels are produced in the Midwest and in the Plains states, and we 
currently do not have the most efficient infrastructure in place to 
transport these liquid fuels to population centers in the East and 
elsewhere.
  Currently, biodiesel and ethanol are transported by barge, rail, or 
truck. But these forms of transportation are far more expensive than 
the pipeline alternative. Simply stated, there aren't enough barges, 
rail cars, and trucks to move renewable liquid fuels from where they 
are produced to where they will be consumed.
  While the most efficient mode for transporting liquid fuels is by 
pipeline, there are multiple obstacles--both technical and man-made--
that have to be overcome.
  The industry is overcoming the technical challenges associated with 
transporting so-called ``neat'' renewable fuels by pipeline, and is 
actively studying the prospect of transporting gasoline/ethanol blends 
via pipeline.
  Since the rate of return on the transportation of oil and gas is 
highly regulated and limited, oil and natural gas companies have been 
selling their pipelines to companies that operate as Publicly Traded 
Partnerships--PTPs--whose core business is the transportation, storage 
and marketing of oil and gas.
  However, by law, Publicly Traded Partnerships must earn 90 percent of 
their income from ``qualifying income,'' which is defined under the tax 
code as income from the exploration, transportation, storage, or 
marketing of depletable natural resources, including oil, gas, and 
coal.
  By their very nature, renewable liquid fuels are not a depletable 
natural resource. And that means that the income produced from the 
transportation, storage, and marketing of these fuels is not qualifying 
income.
  Since the penalty for PTPs that earn more than 10 percent of their 
income from a non-qualifying source is loss of PTP status, they cannot, 
and will not, invest in pipelines designed to transport renewable 
liquid fuels.
  We simply have to remove this obstacle. Publicly Traded Partnerships 
now own and operate 50 percent of America's liquids pipelines. Some 
would argue that there are also others who would be willing to step in 
and meet the need with regard to renewable liquid fuels.
  However, vertically integrated energy companies that own pipelines 
may not view the opportunity associated with renewable fuel pipelines 
in the same manner as a PTP. In fact, since the mid-1980s, when the PTP 
structure was originally codified, several major oil companies have 
been divesting themselves of pipelines, which they have been selling to 
Publicly Traded Partnerships.
  As a result, since the PTP pipeline industry's core business is the 
transportation, storage, and marketing of liquid fuels, these PTP's are 
the most likely industry to build the pipeline infrastructure that we 
will need to transport alternative liquid fuels from the Midwest to 
far-flung parts of the country.
  Bear in mind, too, that PTPs have crucial right of way that would 
make

[[Page S6974]]

the construction of renewable fuel pipelines more likely.
  To this end, we need to expand the definition of ``qualifying 
income'' to include any renewable liquid fuel. This bill does just 
that--to any fuel approved by the Environmental Protection Agency for 
transport in pipelines. Effectively, the modification adds one category 
of fuels that currently do not receive the favorable qualified income 
status: biofuels like ethanol and biodiesel.
  This is entirely consistent with Congress's original intent in 
codifying Publicly Traded Partnerships. At that time, both the Treasury 
Department and Congress recognized that partnerships were the 
traditional manner in which oil and gas exploration, refining, 
marketing and transport were financed.
  Clearly, transportation of liquid fuels was an integral part of what 
Congress intended to cover. However, back in the mid-1980s, few people 
thought that alternative fuels would become a significant source of 
liquid energy.
  It's time to bring the law up to date. Our current dependence on 
imported oil--including oil from some of the most unstable parts of the 
world--is a clear and present danger to America's national security. At 
the same time, our dependence on the burning of fossil fuels--a primary 
source of carbon dioxide emissions, and a primary cause of global 
warming--presents a clear and present, danger to the Earth as we know 
it.
  The price of a barrel of imported oil has shot up nearly five fold 
during the last eight years--from $27.39 a barrel in 2000 to about $130 
a barrel today. During the same time, the cost of a gallon of gasoline 
has risen more than 250 percent, from $1.50 to $4.11. In the future, 
price increases will be driven by an explosion of demand from China, 
India, and other rapidly developing countries.
  We need to seize control of our energy future. We need to rapidly 
shift to clean, renewable, home-grown sources of energy, including 
ethanol and other renewable fuels.
  This legislation is one step, but an important step, in moving us to 
considerably expand our efficient use of renewable fuels, thereby 
expanding our alternatives to gasoline and diesel.
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