Proposed biodiesel tax incentive legislation that was expected to be passed already to replace an existing tax subsidy before it expires Dec. 31 has been caught up in partisan Congressional wrangling that could delay its passage and threaten biodiesel plants across the country.

Several Capitol Hill sources told Telvent DTN late last week that the biodiesel tax incentive bill, drafted by Sens. Maria Cantwell, D-Wash., and Charles Grassley, R-Iowa, has not been scheduled for a hearing yet. It is part of a package of numerous expiring tax provisions that are supposed to be acted on by the Senate, but might not be taken up for vote before Christmas break as Congress continues to be consumed by the healthcare reform bill.

Cantwell and Grassley introduced the bill in August, while a companion bill was introduced earlier this month in the House of Representatives by Reps. John Shinkus, R-Ill., and Earl Pomeroy, D-N.D.

Chico Matiella, a legislative assistant at the National Biodiesel Board, an industry group, said the legislation probably won’t be debated until Congress is done with healthcare, a delay that might force biodiesel plants that depend on the tax credit to close down.

“This is going to be very bad for the industry,” he said. “If we don’t get this extension bill passed before the tax credit expires, we’ll have plant shut downs across the U.S.”

An aide to Grassley said Senate Democrats were causing the delay not only by getting preoccupied with healthcare to the exclusion of everything else, but also by seeking to consider the biodiesel bill alongside a controversial estate tax legislation that splits lawmakers along partisan line.

“We are concerned about the fact that this thing is caught up in the fight over estate tax, which is also expiring Jan. 1, 2010,” said the aide. “The Democratic leadership has decided they want to put these extender packages together with estate tax and that’s causing a lot of controversy. So the controversy is delaying this bill. We hope they would separate the bills so we can pass it by the end of the year, otherwise plants will shut down.”

The Biodiesel Tax Incentive Reform and Extension Act introduced by Cantwell and Grassley extend the biodiesel tax incentive for five years. The proposal also changes the biodiesel tax incentive from a blenders excise tax credit to a production excise tax credit which would is seen as better support for domestic producers.

The existing credit provides $1 gallon tax subsidy for blending biodiesel into petroleum-based diesel fuel. The tax credit barely closes the premium that biodiesel holds over diesel fuel.