Congress Renews Credit for Biodiesel Industry

Source: By MATTHEW L. WALD, New York Times • Posted: Friday, January 4, 2013

Steve Hebert for The New York Times
An E15 ethanol blend on sale at a gas station in Kansas. Federal grants seek to increase availability of the higher blends.

The Congressional budget deal brokered this week kept tax breaks in place for a variety of industries, but biodiesel got something even better: a retroactive reinstatement of a dollar-a-gallon credit going back to January 2012, when it lapsed.

The retroactive portion of the credit, which will run through the end of 2013, represents a benefit to the blenders of about $1 billion. And the $1 per gallon of biodiesel amounts to roughly one-quarter of the fuel’s current wholesale price.

With the credit in place, production will be about 1.6 billion gallons this year, estimated Ben Evans, a spokesman for the National Biodiesel Board, a trade association. Without the credit, the industry would have sold only 1.3 billion gallons, he said.

Since a retroactive credit cannot influence behavior, its main effect will be to encourage blenders that produced biodiesel last year to invest more in infrastructure, Mr. Evans said. Had it been in place a year ago, he said, about 300 million more gallons would have been produced.

Any increase in biodiesel production typically draws criticism from environmentalists and others who warn that it will cut into food production. Soybeans make up about 50 percent of the mix, with the rest coming from animal fats, cooking grease and other sources.

The fuel itself is usually sold in a blend of 5 to 20 percent biodiesel, with the remainder consisting of petroleum diesel.

A year after Congress eliminated two major subsidies for corn-based ethanol, the market has still not absorbed all the ethanol available. So the budget deal also extends tax credits to help gas stations invest in selling a blend of 85 percent ethanol, or E85, or less.

The package allows a credit of up to $100,000 per filling station. The problem is that there were few takers for a similar credit that was in place last year.

Only 3,000 of the 165,000 gas stations in the United States are equipped to sell ethanol blends higher than 10 percent. And at current prices, the millions of cars now capable of using E85 can cover more miles on E10, a blend that is 10 percent ethanol, for the same price.

With the price of a gallon of ethanol now below the price of a gallon of conventional gasoline, oil companies have incentives to use the material as a fuel supplement regardless of tax policy. And the industry still benefits from a quota that the federal government imposes on the oil industry to use ethanol and other bio-based fuels.

But the incentive for consumers remains weak because a gallon of ethanol has only about two-thirds as much energy as a gallon of conventional gasoline.

For years, experts said that introducing new fuels created a chicken-and-egg problem; nobody would sell the fuel until plenty of vehicles could use it, and nobody would buy the vehicles until filling stations sold it. Yet now there are vehicles and fuel, but few gas stations.

Bob Dinneen, president of the Renewable Fuels Association, said the chicken-and-egg analogy was no longer appropriate. “Maybe we get the egg but not the yolk,” he joked. “We do have the fuel, and the vehicles — we don’t have access to the pump.”