Will They or Won’t They?

By Anne Steckel | October 25, 2011

Will they or won’t they? That’s the question that once again is foremost on the biodiesel community’s mind when it comes to Congress extending the biodiesel tax credit, just as it has been each year since the credit was created in 2005.

Before we get into the discussion, a word of introduction—I am Anne Steckel, the new vice president of federal affairs for the National Biodiesel Board. I look forward to getting to know the biodiesel industry from the perspective of its dynamic membership, and I hope to meet you at the upcoming membership meeting in Washington.

As the membership-driven trade association for the biodiesel industry, we know that some are tiring of the questions surrounding the tax credit and are wondering whether the industry should give up on extending the incentive, particularly with the renewable fuel standard (RFS2) for biodiesel in place. This approach has been suggested because of the annual uncertainty created by the tax incentive’s pending expiration and the turmoil created in 2010 when the credit lapsed.

While we certainly understand the frustration, the industry, together with NBB, believes strongly that the tax credit remains a vital component to our industry’s growth and that the industry should remain steadfast in seeing it extended.

First and foremost, the tax credit and the RFS2 program are two distinct policy programs that work together to benefit the industry. For biodiesel producers, it is necessary to have both policies in place to achieve the greatest on-the-ground benefit.  As we all know, the credit greatly improves the economics of producing and selling biodiesel, making it more price-competitive with traditional diesel and opening up new markets across the country. The RFS2 program requires obligated parties to use a minimum of biomass-based diesel in the final diesel fuel or heating oil mix sold to consumers. 

The fuels business is profitable for many reasons, but generally it is a low-margin, high-volume marketplace that is sensitive to price fluctuations. Absent minimum volume requirements, the sale and use of biodiesel and other biomass-based diesel would be sporadic and unpredictable based on swings in commodity prices and due to many other factors. We all know that the biodiesel industry is not always profitable and the tax credit helps us push the product from a small biofuels industry into the much larger petroleum market. This is not easy, and when the credit goes away, it becomes much more difficult.

In the absence of the tax incentive, it may be inaccurate to assume that the RFS2 program and the corresponding RIN program will single-handedly carry the industry past the 1 billon gallon mark, which we hope to meet and exceed in 2012.

We know that the RFS2 program will continue to be questioned on three fronts:  administrative, legislative, and legal. This means the program will face scrutiny from policymakers, by the petroleum sector, in the courts, and even by some consumers. Already, the American Trucking Association has asked the EPA to waive the RFS2 program in 2012, due to the impact of 1 billion gallons of biodiesel on the price of diesel if the tax credit is not extended. This is important, because the EPA is given the authority to waive the program based on price or availability of feedstock. I think we can all agree these are two issues that will certainly prove difficult as we work with EPA on growing the biomass-based diesel pool beyond 1 billion gallons.

Additionally, our industry has placed a great deal of confidence in the value of the RINs. Currently its value is robust. It has helped move biodiesel into the marketplace, and it has added value to the balance sheet of the biodiesel industry. There is reason to be optimistic today about the future of biodiesel and RIN values in a growing biodiesel marketplace. But there is also a realistic analysis that can be done that has RIN values decreasing as we stabilize our monthly production at just over 80 million gallons to meet the 1 billion gallon marketplace. Next year at this time, we may be in a biodiesel marketplace that is contracting rather than expanding, with decreasing RIN values. In that market dynamic, the tax credit will continue to serve a need, especially when biodiesel producers examine their balance sheets and as they continue to depend on financial support from outside investors.

For all of these reasons, the vast majority of the industry believes the tax credit is well worth fighting for, even in a Washington climate where passing anything will be unusually difficult. To me, the proof is in the pudding. After a disastrous 2010, this is the first year that the biodiesel tax incentive and RFS2 biodiesel program have been in place, working together as designed. And look at what is happening: the U.S. biodiesel industry is having a record year, already doubling production for all of 2010.

Because a healthy biodiesel industry is good for the economy, that means jobs and economic activity.
As your trade association, NBB is leading the charge and working hard to demonstrate the tax credit’s value and persuade lawmakers to extend it, just as we worked closely with the EPA to shape the biomass-based diesel pool within the RFS2 program. We lead on these issues through our membership-driven trade association and grassroots program. We acknowledge it is hard work, but it has paid dividends. Since 2004, together we have grown the biodiesel marketplace from a 25 million gallon industry to an anticipated 1 billion gallons next year.

Let’s keep the momentum going.  I hope to see you in November!

Anne Steckel, Vice President of Federal Affairs, National Biodiesel Board

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