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US National Capitol

Policy uncertainty faces biofuel industry

Hearing features struggles of clean energy economy with biodiesel tax credit and RFS waivers.

The renewable fuel sector is facing hard times, Rep. Abby Finkenauer (D., Iowa) said during a hearing she chaired of the House small business subcommittee on rural development, agriculture, trade and entrepreneurship.

“Uncertainty surrounding some of the federal policies and incentives that the biofuels industry has come to rely on has thrown its future and the future of neighbors and Iowa farmers into jeopardy,” she said during her opening comments.

Finkenauer said the Environmental Protection Agency's recent small refinery waivers have undercut the Renewable Fuel Standard (RFS), as 85 waivers in recent years have “killed demand for roughly 1.4 billion bu. of corn,” which she said is an economic blow to farmers. Finkenauer is currently working with colleagues on both sides of the aisle to call for a federal investigation of EPA's exemption process, but the question is whether relief will come soon enough for the biofuel industry.

She noted that even some of the big companies like Archer Daniels Midland "have seen profits drop by roughly 40%, and others have been forced to cut production or stop altogether -- and this was happening even before the Administration granted 31 small refinery waivers for 2018.”

The expiration of the biodiesel tax credit has also created a challenge. This credit was effective in helping the biodiesel industry develop and compete with the well-established fossil fuel industry. Biodiesel supports 60,000 jobs and generates more than $11 billion in economic activity annually.

“Producers are now struggling to survive without the credit. Already, at least eight biodiesel plants have shut down this year. Another three or four may close before the end of the month if it is not extended,” Finkenauer said.

Thomas R. Brooks, general manager of Western Dubuque Biodiesel LLC, testified about the need for federal and state policies that aim to reduce greenhouse gas emissions – such as the RFS and California’s Low Carbon Fuel Standard – to create increasing demand for low-carbon fuels like biodiesel and renewable diesel.

“A long-term extension of the tax incentive and implementation of the Renewable Fuel Standard as Congress intended would be the best ways to help the industry meet those policy goals. With a predictable, long-term tax incentive in place, the biodiesel industry could make necessary investments, grow with confidence and create significant new employment opportunities,” Brooks said. “The tax incentive enables small, emerging companies to access capital at a lower cost, which is necessary to secure renewable feedstocks and build distribution networks.”

Finkenauer said, for months, she’s been working on bipartisan legislation to renew the biodiesel tax credit and is pleased that the House Ways & Means Committee has marked up a package that includes a three-year extension of the tax credit. She said she’ll continue to call on House and Senate leadership to work together to extend the credit immediately.

Congress last renewed the tax incentive retroactively for 2017, two months after the start of 2018. The tax incentive plays a critical role in drawing blenders to purchase the fuel. Because Congress regularly renews the credit, market pressures force blenders and producers to build the tax incentive’s value into their fuel contracts, even when Congress has allowed the incentives to lapse. Biodiesel and renewable diesel producers and blenders have been operating for 20 months with the expectation that they will eventually be able to claim credits for 2018 and amend their financial statements.

Brooks said the uncertainty of the tax credit has resulted in taking more than 200 million gal. of capacity off line, and 6,000 workers are out of a job.

“While a long-term extension would provide the necessary policy certainty, our industry urgently needs an immediate extension of the biodiesel tax incentive for 2018 and 2019, at least, to end the current climate of uncertainty surrounding the industry,” Brooks said.

Western Dubuque Biodiesel employs 24 workers at its plant in Farley, Iowa, and hires 28 contract truck drivers, with a combined payroll of $3.7 million.

"Our small business is a large economic presence in our small community," Brooks stated. "Moreover, we are delivering clean energy right now, today. Strong, consistent federal policy is needed to ensure continued success."

Nationwide, the biodiesel industry generated $17.0 billion in total U.S. economic impact in 2018, supported 65,600 U.S. jobs and paid $2.5 billion in wages, according to a recent study by LMC International.

“The biodiesel and renewable diesel industry is delivering clean energy today,” Brooks added. “The carbon reductions are measurable, helping state and regional programs to meet environmental goals as well as building the rural economy. What the biodiesel industry needs is stable continuity in existing federal policies.”

TAGS: Policy
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