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Gratitude, concerns expressed over biodiesel tax credit revival

While the industry is grateful for a retroactive extension of the $1 per gallon biodiesel tax credit, stakeholders share their concerns over the lack of long-term stability
By Ron Kotrba | January 02, 2013

As 2013 dawned and Americans went about their holiday traditions on New Year’s Day, thoughts of fiscal drop-offs, higher taxes and less spending money were on the minds of many. In the late hours of Jan. 1 though, Congress passed the fiscal cliff bill, in which the $1 per gallon biodiesel tax credit was nestled retroactive back to Jan. 1, 2012, through Dec. 31, 2013. Clearly most people I’ve talked with this morning are grateful the tax credit was reinstated retroactively; however, it is clear that an on-again, off-again tax credit does little for long-term stability and investor confidence in the biodiesel industry.

Ernie DeMartino, founder, president and CEO of Biodiesel Experts International, a company that designs and sells biodiesel equipment and processors, tells Biodiesel Magazine that while his company applauds Congress for passing the retroactive reinstatement of the federal biodiesel tax credit, he wishes it were changed from a blender credit to a producer credit. When asked if the news would affect sales or orders for BEI’s biodiesel equipment and processors, DeMartino says, “It may.”

The largest U.S. biodiesel producer, Renewable Energy Group, issued a statement from its President and CEO Daniel J. Oh. “We are thankful that Congress and the President support the growth of the biodiesel industry through the reinstatement of the credit and for recognizing biodiesel’s important role in energy and food security and job creation,” Oh says. “This tax credit provides certainty for our petroleum distributor customers and, in turn, market stability for commercial biodiesel producers like us.”  

Some people in the biodiesel industry, however, are concerned that reinstatement of the tax credit will only mean higher feedstock prices. In an exclusive Q&A interview with REG’s Vice President of Supply Chain Management Dave Elsenbast, to be published in the January/February 2013 issue of Biodiesel Magazine, I ask him about the tax credit and what his thoughts are about rising feedstock prices in light of a revived credit. “The dollar tax credit, how that gets split up in the marketplace, is determined every day by varying trading levels between what we’re buying feedstocks for and what we’re selling biodiesel for,” Elsenbast tells Biodiesel Magazine. “It doesn’t necessarily all end up in the hands of the feedstock providers. The market splits it up based on everyone’s supply and demand factors. I was looking at the numbers the other day and we had this happen at the end of 2010. Mid-December 2010 the tax credit wasn’t in place and at the end of the year Congress passed it, and made it retroactive back to the beginning of the year and through 2011. If you look at how the markets moved over the next 90 days, when you look at feedstock increases and RIN prices over that timeframe, it seems like about 25 percent of that tax credit ended up in higher feedstock prices. … So it’s split between all the parties in the value chain.”  

Randy Olson, executive director of the Iowa Biodiesel Board, issued a statement that read, “The passage of the biodiesel tax incentive will mean tangible job creation in Iowa and beyond. Encouraging production of American-made fuel brings economic development and energy security—two of our nation’s top priorities. This is an investment in American energy that will pay dividends.” In his statement, Olson said Iowa biodiesel experienced a “mixed bag” last year.

“Although the federal renewable fuel standard helped create market stability, one Iowa plant was forced to shut its doors temporarily,” Olson said. “The reinstatement of the tax incentive will help Iowa biodiesel reach its full potential. In 2013, we can expect a thriving industry that contributes even more to the state’s economy.”

Jeff Haas, CEO and president of Seattle-based General Biodiesel, tells Biodiesel Magazine that any extra government support for the biodiesel industry is obviously welcomed. “However,” he says, “we would be better served if there was a clearly articulated long-term plan. The fits and starts with the tax credit has created uncertainty. Uncertainty keeps venture capital on the sidelines. As we speak with investment bankers and venture capital firms, the questions regarding fickle government support are at the forefront of their minds. Even a three- to five-year plan would create just enough stability to attract investor interest. But we are by no means ungrateful for the vote last night.”

Similar concerns were expressed by Atul Deshmane, president and CEO of biodiesel distribution company Whole Energy. “I think this is a good thing for us and the industry in the short run,” he tells Biodiesel Magazine. “It is hard to guess if this is the best thing in the long term. Eventually, we need to eliminate tax credits to both petroleum and biodiesel.”

“Our clients, project leaders and I are very happy about this,” says Peter Brown, principal with biodiesel equipment provider Euro Marketing Tools, “with a very large ‘but.’ This credit is a clear indication that the government is still not taking biodiesel seriously enough to commit to a five- to 10-year investment. I heard from several projects in development that it is too vague and too late to influence any building plans, and that the financial world will not even allow them to put it on their term sheets.”

Ramon M. Benavides, president of Global Renewable Strategies and Consulting LLC, tells us, “The extension of the renewable fuel incentives is fortuitous for the industry and its ancillary service providers. Rightfully so, the Congress continues to demonstrate its commitment towards energy independence and an informal energy policy. We are hopeful for a formalized policy that will enhance the markets for long-term investment and continued growth.”

 

 

6 Responses

  1. Graydon Blair

    2013-01-02

    1

    I believe Dave Elsenbast said it best and it echo's my views. A large chunk of this credit simply gets eaten up by higher feedstock prices (It's a great day for Griffin, AMD, and other organic oil providers I guess--but they don't need it!). I'm betting in 6-8 weeks the value of new & used vegetable oil will have jumped significantly in response to the credit reinstatement.

  2. Kirk Cobb

    2013-01-02

    2

    Thank you Ron Kotrba for this tax incentive review. I must agree with the general sentiment of your article. Although a 1-year (in the future) tax incentive is appreciated by the biodiesel industry, it is most likely not sufficient to encourage the "business" folks to make the investment to build new plants; they may re-start idle plants, but not build new plants. It takes at least 12 to 18 months, from the drawing board, to complete construction and start up a new plant; a 1-year tax incentive will not generate enough confidence to build new plants - the incentive could be gone before new plant construction is finished. The industry needs a 5-year commitment to generate the confidence to support new plant construction.

  3. Peter Brown

    2013-01-02

    3

    And so begins another one night stand with the dollar incentive, no wonder we get no respect. Daddy, I wanted a long term commitment from them and they just call me whenever they need to show their deep and abiding concern for biofuels without getting too irritating to the large petroleum concerns that pay their bills. (PACs) I can hear all three of them, House, Senate and White House pacifying BP, EXXON, Koch brothers et al. “Hey, Guys, it’s only for a year and look how much we will be providing in petroleum and coal incentives!” The bankers looking at some of our projects told me that I should not bring it up because by the time the plant is built the government will have somehow nullified it. Typical reaction has been, show us a stable RIN table in your spreadsheets, not the yearly carrot. I am unable to counter the finance guys even though I wish I could. So the drop in the bucket we, in the biofuels provide, to combat climate change, cut down carbon emissions and stand for all that is good and honest comes down to a pat on the head until they need our political gratitude again, probably 2014 methinks.

  4. John

    2013-01-03

    4

    No one ever went broke underestimating the intelligence of people in congress. This country is broke and doesn't have the money to throw at 'pet' industries. The outcome of this would be higher feedstock costs (not just for BD, but for all the other businesses that use SBO and Fat), higher costs for food, more red ink for the government and ZERO change in the cost of diesel fuel at the pump. If the BD and other 'renewable' fuels industries cannot stand on their own, tough. We do not need politicians, most of whom are not qualified to manage a corner 7-Eleven, continuing to throw taxpayer money at this where there is no benefit to the country at large.

  5. Lary Cox

    2013-01-03

    5

    Is this the same tax credit for producing renewable diesel fuels using Form 8864, or is it a different incentive? Does anyone know?

  6. Graydon Blair

    2013-01-03

    6

    The Joint Committee on Taxation released their study on what the incentives in the bill will cost. They're estimating the $1/gal incentive will cost $1.977 billion. https://www.jct.gov/publications.html?func=startdown&id=3715 Near the bottom on page 4

  7.  

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