Tax Credit vs. Increased Mandate

What is better for the industry, a renewed, long-term tax incentive or an increased RFS2 mandate?
By Luke Geiver | March 09, 2011

The idea of a tax incentive is pretty simple―for the biodiesel industry, it means companies that blend biodiesel into their diesel mix receive a dollar per gallon benefit. But for anyone who has followed the biodiesel industry over the past year knows, a tax incentive can be more complex than a group of politicians trying to pass a bill in Washington. While the tax credit was reinstated for 2011, and some in the industry embrace it as the main driver to revive the industry, there is growing debate on the role and cost-benefit analysis of the credit versus an expanded federal biodiesel mandate; and which path deserves the most attention.

During the 2011 National Biodiesel Conference & Expo, NBB chairman Gary Haer explained that the tax incentive has been one of the most successful pieces of energy legislation in America’s history. The NBB also celebrated the renewal of the tax credit and voiced its plans to influence decision makers to renew the credit for 2012. Some, like Jeff Longo, principle from Genuine Biofuels, a 6 MMgy biodiesel facility in Florida, are in favor of this push. As Longo explains, one of the problems directly related to failure to focus on reinstatement of the credit for 2012 is related to plants restarting. There are plants out there, he says, that “cannot get financing due to the fact that there is not an extension [beyond 2011].” Those plants that are currently looking to restart need capital to rehire, get in feedstock, reprogram and retrain the employees, he says. “If the tax credit was extended for two or three years, they would have no issue going to the financial people.” For Longo, “a tax credit is a guarantee, and a RIN is just a commodity.”

The opinion of James Garton with Mission NewEnergy, the company that recently signed with Chevron to supply 3,000 gallons of crude jatropha oil for renewable diesel feedstock testing, differs from Longo. “My view is that subsidies to biofuels are not effective at reducing greenhouse gas emissions, they just provide a wealth transfer to the feedstock provider.” He adds, “Mandates are more effective at creating a stable industry, which by business economics will be effective at pricing biofuels and in doing so the premium of biofuels above fossil fuels will reflect the cost of carbon emissions and be borne by the obligated party. Not the tax payers.”

Paul Tantillo, director of operations and a managing member of Enervation Advisors LLC, a company that is working to restart an Iowa-based biodiesel facility, has similar sentiments. “If your solution is the dollar per gallon tax credit, then you are building your house on a faulty foundation,” he says. From Tantillo’s perspective, (like Garton’s), the real value of the tax credit goes to the feedstock provider. Even Longo says that after the reinstatement of the credit in January, his feedstock cost instantly doubled.    

While some argue that the value of RINs will make up for an expired tax credit, or that the absence of a tax credit forever would provide more certainty to investors, there is also no doubt the credit is important. “Do you want the horse or the cart?” Longo asks. “Me, if the dollar tax credit is the horse, I’ll take the horse. At least I know that is a guarantee. If I was a gambler in Vegas, I would go for the RIN.”

—Luke Geiver

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