Tough Times Continue for US Biofuel Producers

Posted by Kristin Miller on December 11, 2009 at 12:38 pm

A worker at the Imperium Renewable biofuel refinery in Washington State, one of the largest in the country. (image: nytimes.com)

The Wall Street Journal reported on Wednesday about a report released this week by the National Biodiesel Board, which paints a grim picture for the future of the nascent biofuels industry if the Federal government does not extend the $1-per-gallon tax credit granted to producers in 2004. The credit is due to expire on December 31. During the fuel price spike of 2008, when gasoline prices broke $4 per gallon, the biofuels industry made great strides towards getting biodiesel off the ground commercially in the US, but with the recession holding down oil prices, bio-blends have lost their competitive advantage, and may be sunk without the federal tax credit. According to the report, currently only about 15% of the country’s production capacity is in use, producing 475 million gallons this year, a one-third decrease from last year. There are a number of factors that play into this state of affairs, not least of which is the near-total elimination of the European market for US biofuels by heavy tariffs, imposed because subsidized US fuel was undercutting the prices of European producers. The loss is problematic because nearly half of the cars in Europe operate on diesel, whereas the majority of American drivers are currently tied to gasoline. The plants of the nation’s two largest biodiesel producers—GreenHunter Energy in Houston and Imperium Renewables in Washington—were sitting idle for months, and there have been layoffs and closures at biorefineries across the country.

If the tax credit is not extended, resulting in further reduction of biofuel production capacity, it may derail legislation passed or planned in a number of states, requiring the use of biofuel in heating oil and other products. The heating oil industry has fully embraced biofuels as a steadily available, renewable alternative to petroleum oil and it often-volatile prices. If biofuel/biodiesel refiners continue to shut down, the price advantage of biofuel (which is both more efficient and cleaner overall] will disappear, along with savings to consumers.

Given that the NBB’s report was dated for release Thursday, December 3, however, the industry picture may not be quite as bleak as forecast. Several events have transpired in the past week that may result in a turnaround for the future of biofuels in America. On Friday, the government announced that 19 biorefinery projects will receive $564 million in subsidies from the American Recovery and Reinvestment Act. Also on Friday, the EPA released an endangerment finding declaring greenhouse gases a threat to human health and the environment, laying a legal groundwork for more intensive regulation carbon emissions from burning fossil fuel. Both of these decisions seem to indicate that a renewal of the tax credit is more likely, as a robust biofuel industry will be needed to supply the nation’s shifting energy needs.