Now that the biodiesel tax credit is reinstated, biofuels plants, such as this one in Illinois owned by Renewable Energy Group, can ratchet up production.
It didn’t get top billing in the package Congress passed in December, but when it comes to agriculture, folding the biofuels tax credit into the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act was a very big deal.
"This is huge; we’ve been working on it for a year," says Alan Kemper, American Soybean Association president. "We’ve been 350 days without it," he notes, adding that the prior tax credit expired at the end of 2009.
"The extension of the tax credit will have a very big impact on the biodiesel industry this year," adds Gary Haer, chairman of the National Biodiesel Board and vice president of sales and marketing for the Renewable Energy Group of Ames, Iowa, the nation’s largest producer and marketer of biodiesel. The biodiesel tax credit is worth about $1 per gallon and is credited to the entity that first blends biodiesel with petroleum diesel.
Haer says that just as the ethanol industry has needed government incentives to get started, so too does the biodiesel industry.
A modest 345 million gallons of biodiesel was produced in 2010 compared with 545 million gallons the prior year. Experts attribute the drastic decline to the tax credit ending. In addition to reinstating the biodiesel tax credit through 2011, the act that Congress just passed also retroactively reinstates the credit through all of 2010.
"Looking backward, at least 25¢ per bushel of soybean prices is due to biodiesel usage, and the biodiesel tax credit was a major way it became cost-competitive," says Alan Weber, an economist with MARC-IV Consulting of Columbia, Mo., and National Biodiesel Board adviser.
That 25¢ is very conservative, he adds, with some attributing 75¢ or more of soybean prices to biodiesel.
As important as biodiesel has been, the new demand for soybeans is particularly welcoming because of the decrease in demand for soybean oil in human foods thanks to the trans fat issue, Weber states. Studies show that trans fats, those used in food processing, increase risk of coronary heart disease. However, several years from now that will be a non-issue for soybean oil because of the new varieties seed companies are developing.
Biodiesel Fills Demand Gap. Looking forward, the picture for biodiesel gets even better, Weber says, thanks to the combination of the biodiesel tax incentive and the Renewable Fuels Standard 2 (RFS2).
In the Environmental Protection Agency’s final rule on renewable fuels resulting from the 2007 Energy Act, which it published this past summer, a minimum of 800 million gallons of biodiesel must be used by 2011 and 1 billion gallons in 2012.
Even more than that will be used, Weber says, because biofuels falls under two categories in RFS2: biomass-based diesel fuel and undifferentiated advanced biofuel.
To qualify as an advanced biofuel, a fuel must be produced in a way that reduces greenhouse gases by 50% compared with petroleum. Soy fits the description.
- February 2011