Biodiesel Faces Doubtful Future Without Blender Credit, Backers Say

Biodiesel blenders that create cleaner-than-diesel fuel from recycled cooking oil, soybean oil and animal fats face an existential threat as they wait to see if Congress will include reinstatement of a tax credit that lapsed two years ago.

The biodiesel blender credit expired at the end of 2017. Companies that make the fuel and the truck plazas where it is sold both hope the credit will be reinstated.

Biodiesel consumption by the transportation sector in the United States. (FreightWaves/SONAR)

But the biodiesel credit was not initially included as part of the dozen bills that make up a $1.4 trillion federal spending agreement reached Dec. 12. Backers hope to get it added, but call the chances slim. The House and Senate are under pressure to get an overall budget agreement before a temporary spending resolution expires Dec. 20.

"Biodiesel production supports over 60,000 jobs across the United States and generates an economic impact of over $11 billion," according to U.S. Rep. Abby Finkenauer, D-Iowa, who introduced bipartisan legislation April 4 to extend the tax credit for two years.

Biodiesel production in the United States. (FreightWaves/SONAR/BDPR.USA)

"It's our hope that will happen before Christmas," said Jimmy Haslam, CEO of Pilot Flying J Travel Centers. "We have over $200 million invested in biodiesel equipment and infrastructure, and we think it is vital that the legislation be passed. If not, the biodiesel industry as we know it is going to disappear."

Endangered Industry

There are signs that is already happening.

Idling or curtailed production at 10 biodiesel plants in nine states has cost 265 jobs this year, according to the National Biodiesel Board, a trade association that represents producers, feedstock suppliers and fuel distributors.

"We expect more announcements in January if the tax credit is not renewed soon," Paul Winters, a National Biodiesel Board spokesman, told FreightWaves.

Blended in amounts from 5-20% depending on the time of year, biodiesel reduces smog and other pollutants from diesel-powered engines. The tax break puts its price on par with petroleum-based diesel.

The idlings and curtailed production wiped out reductions of 2.35 million tons of CO2 and 1.26 million pounds of particulate matter emissions, according to the National Biodiesel Board.

Biodiesel subsidizes the agriculture industry by creating a secondary use for soybean oil. Demand for 163 million bushels of soybeans generating 1,850 million pounds of soy oil that would have been used in biodiesel was lost this year because of lower production.  

Incentive Driven

The $1-per-blended-gallon credit encourages travel center operators like Travel Centers of America (NASDAQ:TA), Love's Travel Stops and Country Stores, and Pilot Flying J to blend  more biodiesel.

"Absent government incentives, nobody would sell biodiesel," David Fialkov, vice president, Government Affairs; Legislative and Regulatory Counsel for NATSO, the association of truck stop and service plaza operators, told FreightWaves.

Travel center operators are selling biodiesel at an artificially low price because they expect to recover the cost, Fialkov said.

TA said in its third-quarter earnings report that restoring the credit would reduce its fuel cost of goods sold by approximately $35 million for 2018 and $28.9 million for the first nine months of 2019. TA projects it would take six to eight months to get the money.

"While we remain optimistic that lawmakers will come up with a compromise before the end of the year to make businesses whole, if they are unable to do so, retailers and the entire biodiesel supply chain will need to re-evaluate the long-term viability of this policy," said TA spokeswoman Tina Arundel.

Broader Legislation

Congress has never voted directly on the biodiesel tax credit. It is part of broader legislation. Dozens, if not hundreds, of policy positions that become law by riding a bigger piece of legislation, also are sidelined, Fialkov said.

Skirmishes over funding of a border wall that President Donald Trump wants to prevent illegal immigration delayed passage of appropriations bills and led to the longest government shutdown in the nation's history. Temporary spending resolutions cover primarily basic needs and leave out tack-ons like the blender credit.

"That is fundamentally why the tax credit has not passed in the last couple of years," Fialkov said.

Biodiesel blenders get some financial help through the federal Renewable Fuel Standard (RFS) and states that offer blending incentives. There is no RFS mandate to blend biodiesel. That means it has to be cheaper at the pump to encourage use.

A renewable energy proposal released Nov. 19 included retroactive reinstatement of the blender credit for 2018 and would keep the $1-per-blended-gallon tax incentive through 2021. After that, the incentive would gradually be reduced, settling at 33 cents a gallon by 2024.

Multi-State Support

For the first time, legislators from states other than those that directly benefit from biodiesel support the tax incentive. Forty Democrats signed a Nov. 6 letter to House Speaker Nancy Pelosi and House Ways and Means Chairman Richard Neal to push for the tax credit.

Like the agreement reached Nov. 10 on a revised free trade agreement between the U.S., Canada and Mexico, reinstatement of the biodiesel tax credit would give Democratic legislators elected in 2018 in conservative districts an additional accomplishment to offset criticism of the House focus on impeaching Trump.

"It never got to the point where these guys had to get involved because usually the support of the ag community combined with flexibility on the part of leadership to put extraneous policy measures into an appropriations bill resulted in the credit coming through," Fialkov said.

Image Sourced from Pixabay