Biodiesel industry hurt by subsidy expiration

    The biodiesel plant in Washington has had to dramatically cut production since the first of the year owing to the expiration of a federal biodiesel subsidy. Every year since 2004, the U.S. government has approved a $1-per-gallon subsidy on biodiesel fuel. The Senate did not renew the subsidy in 2009, so biodiesel manufacturers around the country have had to scale back their operations since then. 

    Mike Bohannan, president of Iowa Renewable Energy, the biodiesel plant in Washington, said, ?Things are pretty much at a standstill? because of the expiration of the subsidy.  

    However, Bohannan expects the Senate to extend the biodiesel subsidy, or tax credit as it is commonly called in the industry, soon after the Senate reconvenes on Jan. 18. He said the fact the Senate did not pass the tax credit in 2009 is not a reflection of a negative attitude toward biodiesel tax credits but rather a reflection of the Senate?s priorities.

    ?The Senate normally renews the biodiesel tax credit in December, but the Senate was entirely focused on health care that month,? said Bohannan.

    Bohannan said the Senate is not singling out the biodiesel tax credit for expiration. He said the biodiesel tax credit was just one of 73 tax credits the Senate normally passes in December but failed to do so in 2009 because of the health care debate. Bohannan said that support for the biodiesel tax credits is generally strong in the Senate and particularly from Iowa?s senators.

    ?We have strong support from Tom Harkin and Chuck Grassley on this issue,? said Bohannan. ?The Senate knows it needs to take up the biodiesel tax credit, and I?m confident that they will pass it.?

    Bohannan said that the market for biodiesel fuel is hurt by the fact that the Senate may not make the tax credit retroactive to the first of the year even if it does renew the tax credit. That uncertainty has caused many buyers to switch from biodiesel fuel to petroleum diesel.

    ?If you were in business and you knew you could get a tax credit for biofuels, there?d be no problem,? said Bohannan. ?But without that tax credit in hand, you?d probably wait to see if the tax credit is approved rather than gamble on what Congress will do.?

    The National Biodiesel Board is based in Washington and lobbies Congress on behalf of the biofuels industry. Bohannan said the board pushed the Senate to pass the tax credits in December, but to no avail. He said the board is now doing all it can to ensure the renewal of the tax credits and to eliminate the uncertainty in the market for biofuels.

    Bohannan explained that the way the tax credit works depends on whether the customer buys B100, which is 100 percent biofuels, or B99, which is blended with petroleum.

For the full article, see our Jan. 11 print edition.