Biodiesel Industry Waits for Renewal of Federal Subsidy

Posted by Carol Sonenklar on November 25, 2009 at 3:40 pm

The biodiesel industry—already struggling in the ethanol-friendly US—need its tax credit to be extended to ensure its future. (image: 4cleanfuels.com)

Biodiesel. It’s one of the new hot green industries. Plants and fueling stations are springing up all across the country. Two years ago, Congress passed legislation to require the blending of 500 million gallons of biodiesel into the nation’s fuel supply in 2009, and doubling to 1 billion by 2012. It’s part of a law that requires usage of 36 billion gallons of renewable fuels, mostly ethanol, by 2022.

But things aren’t turning out quite the way many had hoped, reports the Houston Chronicle. In fact, the biodiesel industry is hurting—big time.

The biodiesel fuel industry was already reeling from a string of recent setbacks, such as a 30 percent increase in the price of soybeans, weak domestic demand for biodiesel, and on-again, off-again support from the government. These obstacles have forced many plants to close, with accompanying job losses. The industry suffered a severe blow in March of this year, when the European Commission imposed tariffs on US biodiesel after complaints that US producers were undercutting local biodiesel providers. The tariffs have all but blocked US access to the European market, where biodiesel has made much greater inroads than in it has in the US.

But the worst may be yet to come.

If Congress fails to extend a $1 per gallon tax credit, set to expire Dec. 31, biodiesel producers in Texas and elsewhere will likely have to stop operations and cut even more jobs, industry insiders say. Last week legislation was introduced in the House that would extend the tax credit for five years. But the bill authored by Reps. Earl Pomeroy, D-N.D., and John Shimkus, R-Ill., will probably have to be attached to a broader package if it’s to pass. The Senate is also moving on similar legislation.

“It would be devastating for the national and the Texas biodiesel industries,” said Jeffrey Trucksess, a consultant to Green Earth Fuels, whose 90-million-gallon-per-year biodiesel plant at the Houston Ship Channel is currently operating below capacity.

Biodiesel, made primarily from vegetable oils, has been slow to take off in the US. Unlike in Europe, where the majority of cars use diesel fuel, Americans are tied to gasoline, and ethanol is the leading green alternative to gasoline. Today, US biodiesel plants have the capacity to produce about 2.5 billion gallons a year of the fuel. Yet more than half of that plant capacity is sitting idle, as the federal subsidy and other factors keep the industry uncertain.

To increase demand, the government approved a $1-per-gallon tax credit for companies that blend biodiesel with petroleum diesel in 2004, enabling the industry to compete and spurring a building boom of diesel plants.

And in 2007 energy legislation passed that was supposed to require the blending of 500 million gallons of biodiesel into the nation’s fuel supply in 2009, doubling to 1 billion by 2012. It’s part of a law that requires usage of 36 billion gallons of renewable fuels, mostly ethanol, by 2022. But while ethanol mandates are progressing, the EPA has not approved rules to put the biodiesel requirement into practice.

But it’s the $1 tax credit that is worrying industry insiders more than anything else. Especially in light of the fact that each year, the credit has gotten renewed, albeit late in the year. Last year, it was maddeningly late—but not as late as this year.

“Usually, by this time, it’s been extended, or we know it will be,” said Jess Hewitt, president of the Biodiesel Coalition of Texas. “So, we’re getting very nervous here, because this is November, and we don’t have the credit extended.”