Biodiesel, in Subsidy Drought, Finds Few Friends

(MoneyWatch)  Woe is biodiesel. After a vital $1 per gallon tax credit to biodiesel producers expired on January 1st thanks to political neglect (likely a side-effect of the health care fight), the only incentives the industry enjoyed were vague promises by lawmakers to get a retroactive credit re-enacted.

Now biodiesel has been caught in a political crossfire between two Republicans, Sen. Max Baucus and Charles Grassley, and Sen. Majority Leader Harry Reid. The Republicans placed the subsidy in a larger, $85 billion jobs bill, which was quickly whittled down to $15 billion by Reid, who seems to be trying to score points for thriftiness.

It's been two months since the credit vanished for biodiesel, but with Reid's move, the forecast for renewal has gone from "sometime soon" to "some undetermined point in the future", at least according to the National Biodiesel Board, which is tracking the issue.

The problem for producers is that once enough time passes, a retroactive credit may be useless. The industry had a rough year in 2009, with many plants barely operating as the price for standard diesel fell below the cost to make biodiesel. Many companies are already on the ropes, and could go bankrupt or shut down soon, at which point the credit will be moot.

Despite the partisan sniping, biodiesel does in fact enjoy bipartisan support; for instance, Sen. Charles Schumer of New York is trying to save Northern Biodiesel, the only plant operator in his district, and agriculture secretary and Obama appointee Tom Vilsack is now urging that the credit be renewed.

The true problem for biodiesel may simply be that, unlike its biofuel cousin ethanol, it's easy to ignore. The difference between biodiesel and ethanol is neatly illustrated by the energy writer Robert Rapier's latest article in Forbes, in which he complains about the dual mandate and subsidy for ethanol.

Posting on his personal blog, Rapier notes that the negative comments posted to that article seem to be astroturfing by Growth Energy, a well-funded lobbying group headed by former general Wesley Clark. It's rare to see similar attention paid to the critics of biodiesel

Beyond just its own lobbyists, ethanol is also guarded by the political machinery of corn farmers and the agriculture industry. Biodiesel, by comparison, has spent less on lobbying and is less important to agriculture. The results, in its current predicament, are clear.

[Update: A previous version of this story inaccurately listed Wesley Clark as the co-chairman of the American Coalition for Ethanol.]