A Boost for Biodiesel

The U.S. biofuels industries' multi-year campaign to get an energy bill with a renewable fuels standard-and an extension of the federal biodiesel excise tax credit-through Congress ended triumphantly in late July. It didn't include everything the industry wanted, but many feel fortunate.
By Dave Nilles, Ron Kotrba, Jessica Williams, and Tom Bryan | August 01, 2005
Following the lead of the National Biodiesel Board (NBB) and the American Soybean Association, nearly the entire U.S. biodiesel industry was voicing collective praise at press time for Congress' July 29 passage of the energy bill.

The landmark legislation passed with several provisions to promote the growth of the U.S. biodiesel industry, including the extension of a federal excise tax credit. Extending the tax credit-a legislative pursuit the NBB claimed as its No. 1 priority in 2005-is widely considered vital to the industry's continued growth.

The excise tax credit amounts to a penny per percentage point of biodiesel blended with petroleum diesel for so-called "agri-biodiesel" biodiesel made from virgin oils and animal fats and a half-penny per percentage for biodiesel made from recycled vegetable oil. It is taken at the blender level with the intended effect of lowering the cost of biodiesel to consumers in taxable and tax exempt markets. The tax incentive, established originally as part of the American JOBS Creation Act of 2004, would have expired in 2006. It will now be extended through 2008. While the excise tax credit is the foremost legislative triumph of the energy bill for biodiesel advocates, some producers expect to benefit greatly from the 7.5 billion gallon renewable fuels standard (RFS), as well as the small producer tax credit for biodiesel, both of which were included in the final bill.

While President George W. Bush had not yet signed the bill at press time-Washington pundits said his approval was all but certain-reaction from the industry was overwhelming positive.

"What [the energy bill] shows is a continuing favor for biodiesel and enthusiasm for the biodiesel industry," said Nile Ramsbottom of West Central Co-op in Ralston, Iowa. "I think it works well in helping sustain and increase the demand."

As for the 7.5 billion gallon RFS, Ramsbottom said ethanol will probably represent the lion's share of that number. "But, looking at the big picture, it helps keep the public aware that there is a [biodiesel] industry that can supply more fuel," he said. "It will stimulate interest and demand."

Fred Wellons of Los Angeles-based Baker Commodities, said the RFS might benefit the biodiesel industry more than some think. He said biodiesel could become the preferred way for U.S. petroleum refiners to comply with RFS implementations in years ahead. Depending upon the continuation of the biodiesel excise tax credit, biodiesel prices, feedstock prices and ethanol prices, blending biodiesel may be cheaper for refiners than blending ethanol, he said.

Wellons also told Biodiesel Magazine the industry had been lobbying for a 2010 tax extension, and advocates of that plan were slightly disappointed with the 2008 extension. However, he said, 2008 is better than nothing. "For people going ahead with plants, this cements their decision," he said.

Jake Stewart of Biodiesel Industries was extremely pleased with the result of the energy bill. "We're absolutely thrilled," he said. "A tremendous amount of kudos go to the NBB and Joe Jobe who led this. They've had to clear a lot of hurdles, but they've followed through with a show of strong legislative support for stabilizing investment in the industry in the years to come."

Seattle Biodiesel's John Plaza told Biodiesel Magazine he is excited about the energy bill's passing, but wants to make sure the biodiesel industry gets all it can out of the RFS. "We're very happy to see the RFS pass," he said. "We'd like to see a little more language in the [RFS] for biodiesel so ethanol doesn't take over, but this is a fantastic step for our business, the industry and the nation as a whole."
Plaza was one of two industry leaders who told Biodiesel Magazine the RFS and tax credit extension will create at least a 1 billion-per-year market by the time the RFS goes into full effect in 2012. "We'd like to be a significant player in that," he said. "We're looking at sites across the state of Washington, and we're looking at producing 30 mmgy to 60 mmgy within the next three years."

Jim Venner, who helped Western Iowa Energy's biodiesel plant into the construction stage, has seen a "surge of additional interest and activity" in the Midwest biodiesel industry through his consulting company Ag Visions. "I think [the energy bill] is a huge boost to all renewable fuels, especially biodiesel," Venner said. "Obviously [the industry is] growing, and this will be a huge boost."

Since Western Iowa Energy has already begun to build the 30 mmgy facility, Venner said the company will concentrate on starting initial production and then consider an expansion if the market calls for it. But Venner said the biodiesel tax incentive extension will add stability to all start-up companies, including those throughout Iowa that Venner works with. "It'll allow us to talk to bankers, investors and have more confidence in our ability to make this thing work," he said. "It'll increase the excitement right away and will enhance additional activity within the industry. One of the concerns we've heard from financial institutions is that the incentive lasts only two years. This will give us an extra comfort level."

Wellons said Baker Commodities is considering plants in Boston, Los Angeles, and in the Seattle/Tacoma, Wash., area. He said the extension should spur more people to build plants. "If people were on a fence with the two-year period, this extension should push them into building plants," Wellons said.

Skip Hauth of Grand Island, N.Y.-based Biodiesel Management Inc., the company overseeing construction of a proposed 32 mmgy biodiesel plant in Minot, N.D., said he is pleased with the extension of the biodiesel tax credit. However, like Wellons, he is somewhat disappointed it was only extended to 2008. "It's problematic for those of us building large plants," he explained. "It takes us about 14 to 15 months to get [a facility] up and running at full volume."

Marvin Oerke of Prairie Pride Inc., a proposed 30 mmgy plant in southwest Missouri, said he is very pleased with the energy bill. Prairie Pride is moving ahead quickly with its plans for a plant. They are readying for a membership drive, consulting with potential design/build teams and narrowing down site selection. "We had to move ahead with doing our feasibility study based on the fact that maybe we wouldn't get past [the 2006 tax credit]. When it was extended to '08 that helps. [The United States] had a chance 25 years ago to do something about our problem," Oerke said, referring to dependence on foreign crude oil. "It's nice to see an energy bill really get passed."

Biodiesel Magazine staff writers and editors can be reached by phone at (701) 746-8385.

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