FINANCE: Tax Credit Offers Bright Side To Increasing Regs

H. Lanier Hickman

The Solid Waste Association of North America (SWANA) and other industry organizations are trying to extend a federal tax credit for landfill gas (LFG) energy recovery systems.

In the United States, more than 100 LFG projects recover the gas and prepare it for various energy applications including boilers, pipelines and electric generation. Simple systems remove the moisture and use the gas to drive engines and for boilers which produce energy. More complex systems produce pipeline-quality gas for utility systems. Both systems are costly and their economic viability is extremely sensitive to the price of energy.

With increased landfill regulations, it's not surprising that the gas generated in landfills also will be regulated. The United States currently regulates LFG migration at the boundary line of the landfill property. In the near future, the U.S. Environmental Protection Agency (EPA) likely will issue regulations to control nonmethane organic compounds (NMOCs). As a result, landfills will need to install gas collection systems. While flaring the gas would meet the necessary air quality requirements, the gas also is a viable energy source.

Although LFG is plentiful, it is costly to install and operate a gas energy system. Also, the systems often aren't economically viable unless, for example, a utility company will pay 6 cents per kilowatt of electric energy. Consequently, the viability of LFG as an energy source is tied to several economic factors, including the price of the energy recovery system, the costs of regulatory compliance, the best price for the energy sold and a federal tax benefit.

Section 29 of the Internal Revenue Code allows anyone producing "gas from biomass" to claim a tax credit of 97.9 cents per mmBTU for the fuel. (This is the tax figure for 1993; it is adjusted each year for inflation.) The facility producing the fuel must be in service by December 1996. Projects that went into service before 1993 qualify for tax credits on their production through 2002. Projects that become operable between 1993 and 1996 qualify for tax credits on production through 2007. Under current law, the producer must sell the fuel to an "unrelated person" to qualify for tax credits.

The tax credit value can vary, but is usually approximately 1 cent per kilowatt of electric energy sold. Enacted in 1980, this tax credit has been extended three times, most recently in 1992. It is scheduled to expire in December 1996.

Since upcoming regulations require collection systems, extending the tax credit for LFG is vital to operators. The U.S. EPA's "Landfill Methane Outreach Program supports the extension and is working to increase the use of LFG energy systems.

In addition, SWANA and several other organizations are taking action to bring this issue to the attention of Congress. The organizations have outlined the following changes to the Section 29 Tax Credit:

* Extend the deadline for projects to become operable;

* Extend the credit's expiration date by the same number of years;

* Establish a single expiration date so that all projects - even those already in service - qualify for credits through the same date; and

* Allow the LFG producer to generate electricity, provided it is sold to an unrelated person.

For more information on the effort to extend the tax credit, contact: Lanny Hickman, Executive Director, SWANA, P.O. Box 7219, Silver Spring, Md. 20907-7219. (301) 585-2898. Fax: (301) 589-7068.