Under House Bill 2853, tax credits would only be available for manure processed in biodigesters operational before the end of 2016.

MATEUSZ PERKOWSKI/CAPITAL BUREAU - Steve Smith, a technician for Farm Power Tillamook LLC, explains the functioning of a dairy biodigester near Tillamook, Ore., in this file photo. Lawmakers are considering limiting tax credits for biodigesters to facilities operational before 2017.SALEM — Oregon's anticipated budget shortfall has prompted lawmakers to consider limiting tax credits for processing livestock manure into energy in biodigesters.

Biodigesters break down manure, releasing methane gas which is used to generate electricity. The remaining solids have many uses.

They are expensive, and farmers have used the tax credits to offset the costs.

Under House Bill 2853, tax credits would only be available for manure processed in biodigesters that were operational before the end of 2016.

The credit effectively costs Oregon about $4 million a year in foregone tax revenue and has the potential to grow more expensive due to the proposed construction of a large dairy, said Rep. Phil Barnhart, D-Eugene, during a March 7 hearing on HB 2853.

Barnhart said he's not "wedded" to the idea of disqualifying biodigesters that became operational in 2017 or later from tax credits and would appreciate alternative suggestions from the House Agriculture Committee.

"If we don't do anything, this credit is going to increase significantly over the next couple years," he said.

The question pertains to how Oregon encourages the adoption of biodigesters, said Barnhart.

The tax credit is one approach, but Oregon could simply require large "confined animal feeding operations" to cover the cost instead of using the general fund, he said.

Lawmakers should consider the extent to which the tax credit encourages the development of new large CAFOs, Barnhart said.

"They have a number of problems associated with them," such as air and water pollution, he said.

Representatives of the Oregon Dairy Farmers Association, the Oregon Farm Bureau and Threemile Canyon Farms — a dairy near Boardman, Ore. — testified against HB 2853, arguing the tax credit has promoted air quality and contributed to renewable energy development.

By relying on regulation rather than incentives, the government would effectively impose a new tax on dairies as well as their customers, said Len Bergstein, representative of Threemile Canyon Farms.

"There's a reason we've decided to go in a different direction in Oregon," Bergstein said.

By limiting the tax credit, lawmakers would unwittingly be playing into the anti-dairy agenda of certain activists who oppose new facilities in Oregon, he said.

Dairy producers already made a sacrifice last year, when they agreed for the tax credit to be reduced from $5 per wet ton of manure to $3.50 in exchange for keeping the incentive until 2021, Bergstein said.

However, Bergstein said other options were possible, such as setting a cap on the amount of tax credits that can be earned from biodigesters or reducing the per-ton credit amount over the life of a project.

Friends of Family Farmers, a group that's critical of large CAFO operations, said tax credits shouldn't be available to new biodigesters until Oregon implements a program to control dairy emissions.

Since 2007, when the tax credit was enacted, the number of dairies in Oregon has fallen from nearly 600 to fewer than 240, Maluski said. "If Oregon's goal with this tax credit is to support struggling small and mid-sized dairy farms, it has failed."

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