Biodiesel Industry's Future (and Tax Credit) Tied to Senate Jobs Bill

(MoneyWatch) 

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U.S. biodiesel producers are relying on the very folks - that would be Congress -- who added to their financial woes at the close of 2009. Not exactly the spot a struggling industry wants to be in.

Their future -- or demise -- hinges on the restoration of a $1-per-gallon tax credit that the Senate allowed to expire last year. The industry has come to a near standstill since the tax credit expired. At the moment, the best chance for the tax credit's renewal lies with Iowa Sen. Chuck Grassley, the senior Republican on the Senate Finance Committee. Grassley wants the tax credit included in a jobs bill scheduled for debate on the Senate floor this week.

And the senator is well-positioned to deliver. Grassley is working with finance committee chair Sen. Max Baucus, D-Montana, to make sure it happens. Grassley told reporters Tuesday morning during a conference call that he will "insist that expired tax provisions including the biodiesel tax credit" is included in the jobs bill. [The Hill's E2 Wire just posted a report that says the draft version of the jobs bill includes the tax credit extension.]

"The tax credit was allowed to expire at the end of 2009 due to political calculations by congressional leaders, putting biodiesel production and jobs in jeopardy," Grassley said during a conference call with reporters Tuesday. "The sooner the tax credit is restored, the sooner biodiesel-related facilities and jobs can be saved from going under."

The biodiesel tax credit was originally passed in 2004 and has been extended twice since. In its simplest intentions, the tax credit makes biodiesel competitive to regular diesel fuel. It also has allowed the biodiesel industry to grow, meaning more jobs and tax revenue for federal, state and local governments.

But the heavy reliance and design of tax credits also are problematic. Take the biodiesel industry. It's existence -- which was battered in 2009 by a lagging demand for fuel, a recession and an EU-imposed export tariff -- is staked on the renewal of the $1-per-gallon tax credit. Without it, the current-generation biodiesel industry is unable to compete with oil, as fellow BNET blogger Chris Morrison noted last month.

Not all is lost for the biodiesel industry, however. Even without the tax credit, it did receive a much-needed boost from the Environmental Protection Agency's final Renewable Fuel Standards rules. The EPA announced last week that biodiesel's emissions were low enough to qualify it for use under federal biofuels mandates. The finalized RFS2 called for refiners to use 1.15 billion gallons of biodiesel in 2010.

See additional BNET Energy coverage of the biodiesel industry:

• Climate Bill Battle: Without a Price on Carbon, It's Just a Bunch of Tax Credits
• Biodiesel Blues: A Congressional Snub Adds to Producer's Woes
• EU Imposes Five-Year Tariff on U.S. Biodiesel Producers
• GreenHunter Puts 'For Sale' Sign on Biodiesel Refinery