JOBS: Judgments on Biodiesel Stimulus

The elimination of jobs in the biodiesel sector began in 2008 when agricultural commodity prices started tracking crude oil in the months preceding Wall Street's September crash. Plants unable to make their margins work started to shut down, and workers were laid off. Like exuberant investors, the biodiesel sector also attracted talent. Engineers and chemists, risk managers and traders were often eager to leave their jobs in forestry, petrochemical and other industrial sectors to help biodiesel companies get started, grow or improve. "Everybody wanted to get in," says David Ball, partner in the renewable and alternative energy practice for Charlotte, N.C.'s Sterling Partners USA. "But I know a lead engineer of a major biodiesel company who left for a different position, and they didn't replace him."

Those hurt most by the expiration of the tax credit, however, are the blue-collar workers-some without college degrees and restricted to rural areas where they were raised, and where biodiesel plants are located. "The chemists and the engineers and the presidents can go back to the oil company or wherever else," Ball says. "It's the mechanics and the maintenance men who are having a hard time."

Having worked in the agricultural and petrochemical industries for years, Ball is now focused on finding talent for second- and third-generation biofuel companies. Cellulosic ethanol and biodiesel made from algae are still years away from commercialization, and the government should be doing everything it can to make sure that current biodiesel products are affordable enough for the public to buy-today. "The lapse of the tax credit has raised the price of biodiesel to the point that it can't compete as a transportation fuel," Ball tells Biodiesel Magazine.

But the jobs issue has been the rallying point for industry efforts to have the tax credit extended. Over the past few months, "jobs" has been heard so many times that it has become annoying. Biodiesel advocates such as Randy Olson of the Iowa Biodiesel Board have argued that this industry already exists and does not need further research efforts with jobs to offer, if the tax credit is in place to support it. "For every dollar that Iowans spend on diesel fuel, more than 70 cents leave the state. Meanwhile, about half of the state's biodiesel plants sit idle, with those still operating forced to lay off staff or cut pay," he says.


Resolution Rigmarole

Biodiesel producers have watched hopefully and helplessly as an "extender" has been included in four different pieces of legislation since last fall. On March 1, Senate Majority Leader Harry Reid (D-Nev.) and Sen. Max Baucus (D-Mont.) introduced the American Workers, State and Business Relief Act, a $150 billion piece of legislation that includes an extension of the biodiesel tax credit. A vote was expected in early March, after fierce bickering dominated proposals for job creation legislation between Democrats and Republicans on Capitol Hill. For the time being, the industry remains a ringside spectator.

The fact that the biodiesel industry was "double-dipping" in 2007 and 2008 by taking the $1-per-gallon federal excise tax credit for methyl ester blending, then shipping the fuel to Europe to cash in on additional subsidies caused a "public relations issue," says a Biodiesel Magazine source, regarding the lapse of the benefit. "The industry is also spread out and diverse, so the question has been 'who's going to be the champion?'" the source says. "And [the biodiesel industry] isn't economically big enough for anybody to care-that's why they've had such a hard time getting this thing passed."

The first jobs bill was introduced on Feb. 11 by Sen. Charles Grassley (R-Iowa) and Baucus, called the Hiring Employees to Restore Employment Act, legislation that among other things provided for the extension of expired tax provisions, including the biodiesel tax incentive. This was a "jobs" bill worth $85 billion that had bipartisan support and the approval of the White House. It didn't even take a day, however, once Grassley and Baucus' work was circulated, for Reid to announce his decision to move forward with a scaled-down jobs package that did not include an extension of the biodiesel tax incentive, "indicating that this issue and other expiring provisions would be addressed at some undetermined point in the future," the National Biodiesel Board stated.

As previously mentioned, the biodiesel tax incentive has been written into at least four bills since November that have never gotten to a Senate vote. "Grassley and Baucus worked hard to craft this legislation and the fact that Reid changed it is terribly disappointing," Olson says.

Republicans may feel like they fell for the classic bait and switch-a political maneuver where one party agrees to a deal simply to ascertain the wishes or motivations of an opponent, then backs out-in regard to Reid's actions while negotiating items in job creation.

Reid's decision to cut the Grassley-Baucus bill and then write his own legislation that included many items Republicans wanted was kind of mysterious. Opponents argue that it sends a message that "[Reid] wants to go partisan and blame Republicans when Sen. Grassley and others were trying to find common ground on solutions to help get the economy back on track and people back to work," Grassley's office stated. "The Majority Leader pulled the rug out from work to build broad-based support for tax relief and other efforts to help the private sector recover from the economic crisis."

Nevertheless, while Republicans and Grassley, a stringent biodiesel supporter, were excluded from drafting the most recent bill that includes an extension of the tax credit, it will matter little to the biodiesel industry if the current bill is passed soon.


Employment Creation Strategies

Backing a strategy to employ energy tax credits as a means to creating jobs might be a hard position to defend, says David Swenson a biofuels advocate and professor of economics at Iowa State University. "A biodiesel plant that produces 30 MMgy would be subsidized at $30 million and only support 30 jobs-that's $1 million per job," Swenson says. "If $100 million is spent constructing roads and bridges or doing building retrofits, it could support between 1,750 and 2,000 jobs. So I'm not sure the biofuels industry wants to make the argument that energy subsidies create jobs, because those jobs are extremely expensive."

These comments that Swenson relayed to Biodiesel Magazine prompted some sharp responses from biodiesel industry stakeholders and observers. "Those $30 million dollars spent for tax credits will prevent $30 million from going overseas and never coming back in trade," says Larry White, director of CFO Capital Services, and developer of a biofuels project called America's Fuel First. "That $30 million will grow here to become more than an equal amount in tax revenue in less than a year."

Second, by those dollars staying here, they circulate here and grow here. For every $100 million kept in the United States, "that $100 million will grow to over $500 million in just one year by circulating between buyers and sellers of all kinds of goods and services when each seller marks up his products by an average of only 15 percent-six cycles gets you $500 million," White says.

Roman Wolff, president of Enhanced Biofuels, a Houston firm that has developed a noncaustic reactor for biodiesel processing, also had very strong opinions. "If you are going to compare expenditures, compare the same amount, $30 million for both biodiesel and road construction, not $30 million for one and $100 million for the other," Wolff tells Biodiesel Magazine. "Most projects (roads and others) are only 20 percent labor, so a $30 million roads project would be only $6 million in labor and create only 100 direct jobs, not the 2,000 claimed by Swenson. These 100 low-paying jobs are not much better than the 30 high paid biodiesel jobs."

An investment in biodiesel adds many indirect jobs in logistics and transportation, maintenance, along with other sectors and this trickle effect is much smaller when building roads-roads are not a business. An investment in biodiesel is an investment in the community and long term, high-paying, steady jobs, not low-paying jobs that come and go with the projects. "First, complete a project in Texas, then lay people off," Wolff said. "Then go to Minnesota, and so on-these road projects maybe good stopgap measures, but they do not build communities."

Swenson made the comparison between biodiesel projects and road construction perhaps defending a bill that was passed by the Senate accommodating several road projects after the original Grassley Bill was cut. "An investment in biodiesel reduces the trade deficit by three to four times the amount invested," Wolff says. "I don't think roads can claim that benefit. An investment in biodiesel reduces pollution. Roads? Nope, actually the cement used drastically increases pollution."


Nicholas Zeman is associate editor of Biodiesel Magazine. Reach him at (701) 738-4972 or n[email protected].