Biodiesel industry uncertain as it awaits RFS ruling, tax incentive extension

Source: by Lynn Grooms in Farm Industry News Blog • Posted: Friday, March 7, 2014

This year’s outlook for the biodiesel industry is cloudy given uncertainty about EPA’s proposal to require just 1.28 billion gallons of biodiesel under the Renewable Fuel Standard (RFS) for 2014. The industry also waits on a decision by Congress regarding an extension of the $1 per gallon biodiesel tax credit.

Photo courtesy of the soybean checkoff and United Soybean Board 

The EPA’s proposal to require just 1.28 billion gallons of biodiesel under the Renewable Fuel Standard (RFS) for 2014 could have a chilling effect on the biodiesel industry and soybean producers. Coupled with uncertainty about an extension for the $1 per gallon biodiesel tax credit, the outlook is cloudy.

The United States produced nearly 1.8 billion gallons of biodiesel in 2013. If just 1.28 billion gallons are required in the RFS for 2014, the biodiesel industry would see a 40 percent reduction from last year’s production. “Moreover, since refiners can carry over excess 2013 production into 2014 for RFS compliance, the market could be closer to one billion gallons, or almost half of our 2013 production,” says Anne Steckel, vice president of federal affairs, National Biodiesel Board (NBB). “That would be devastating for the industry and for biodiesel producers across the country. It’s difficult to predict the impact that would have on soybean markets, but clearly biodiesel provides a solid market for excess soybean oil. With the industry contracting to that extent, it would certainly soften those markets as well.”

Mike Cunningham, a soybean producer from Illinois, is a director on the board of the American Soybean Association (ASA). He also serves as treasurer of the NBB. If the EPA’s proposal sticks and there is a large carryover of soybean oil, soybean prices could fall by as much as $.25-$.50 per bushel, Cunningham says. Moreover, the country as a whole will be missing an opportunity to diversify its fuel supply and create jobs, he adds.

The industry is encouraging grassroots and political support for extension of the expired biodiesel tax credit. Senators Maria Cantwell (D-WA) and Charles Grassley (R-IA) have introduced a bill (S. 2021) that would extend the tax incentive until 2017, providing the certainty the industry needs to attract capital and plan for production expansion.

“The tax incentive clearly stimulates additional production and has a positive impact on jobs and economic activity, both in the refining sector and the feedstock sector,” Steckel says. “This marks the third time in five years that this incentive has expired. This uncertainty is incredibly disruptive, not just to biodiesel plants across the country, but also to our bipartisan goals of creating jobs in new domestic energy industries and boosting energy security by diversifying our fuel supplies.”

Without the biodiesel tax incentive, infrastructure will suffer, biodiesel production will not expand and there will be no new jobs. “This will hurt the rural economy because it will reduce farm income,” Cunningham says.