Expiration of Biodiesel Credit Leaves Producers and Retailers Uncertain

The biodiesel tax credit expired at the end of last week, leaving biodiesel producers and truckstops in uncertainty over what the next few months may hold, and truckers concerned about possible price increases.

According to Michael Frohlich, director of federal communications at the National Biodiesel Board, there has been some talk of layoffs and shutting down among smaller biodiesel makers, but biodiesel producers have been waiting until after the holidays to announce their final plans for moving forward. These businesses are evaluating how things are going, looking at how much capital they have on hand, and seeing how long they can go on without the subsidy.

Last month, the Senate decided to table the consideration of an extension to the biodiesel tax credit until after the holidays, but some say the delay would force biodiesel producers to cease operations and lay off their workers because consumer demand for the fuel would plunge without the credit. The Senate has been tied up with other priorities, especially the health care debate. Sens. Max Baucus, D-Mont., and Charles Grassley, R-Iowa, have committed to taking up the legislation when Congress reconvenes this month. Although the timing of the legislation is unknown, Frohlich says the $1 per gallon credit will likely pass and could be made retroactive to Jan. 1.

According to NATSO, a national trade association representing travel plaza and truckstop owners and operators, truckstops will likely see a sharp drop in the availability of biodiesel and an increase in prices, until an extension is passed.

Rich Moskowitz, vice president and regulatory affairs counsel at the American Trucking Associations, says the end of the subsidy will essentially cause a direct increase in cost for the trucking industry because of the mandates to use biodiesel. Specifically, the Federal Renewable Fuels Standard requires the use of 650 million gallons of biodiesel in 2010, and without the $1 a gallon credit, this would cost the trucking industry and consumers an additional $650 million this year. In addition, some states have biodiesel requirements, such as Minnesota, which requires diesel fuel to contain 5 percent biodiesel.

However, these mandates will create some artificial demand, Moskowitz says, as some will be forced to buy it. While the 650 million gallons will certainly keep some producers afloat, there are more biodiesel producers out there than are gallons of biodiesel mandated for use, Moskowitz adds.

According to Frohlich, consumers in the states with mandates will end up eating the additional costs for biodiesel. Without the subsidy, the biodiesel industry will not see a whole lot of excess production, he says. The NBB is directing its members to contact their elected officials and tell them about the importance of the tax credit to their business.

With the added financial pressures, biodiesel producers could be cutting corners, Moskowitz says. Three years ago, the industry was having problems with the quality of biodiesel produced in the U.S., causing operational problems for trucking companies. Since then, the NBB has implemented a quality assurance program, but there are still some problems, Moskowitz says. He urges trucking companies to be vigilant in choosing a biodiesel producer during this time.