Biodiesel Blues: A Congressional Snub Adds to Producer's Woes

Last Updated Jan 5, 2010 7:54 AM EST

The only thing worse than being insulted is being ignored. That's where the collective biodiesel makers of the United States have found themselves, as Congress failed to renew -- or even comment on -- a $1 per gallon biodiesel credit before the end of their last session.

Last year already saw the industry's production plummet to around half of the 700 million gallon per year high it reached in 2008. The party was cut short when Europe passed a prohibitively high tariff to prevent U.S. companies from shipping their fuel overseas.

Biodiesel continued to limp along at home, although falling oil prices challenged its ability to compete. But with the end of the credit last Friday, refineries have already begun to shut down, including the country's two largest.

Watching biodiesel struggle for recognition over the past decade has been an object lesson in the value of lobbying and PR. While corn ethanol producers have kept continuous pressure on lawmakers and sought to positively influence the public, biodiesel dropped from the radar after a brief press blitz staged before 2005.

The result isn't just a lower profile, it's also a smaller chance of survival. A similar story is also playing out in Canada, where British Columbia is letting the price of biodiesel rise enough that consumers will likely stop purchasing it.

In the U.S., Congress may retroactively apply the credit, but it's unlikely many buyers will be willing to bet on that happening; in the meantime, the more fragile biodiesel producers (which in the current economy may be a majority) could go out of business.

There's one thing that isn't the fault of Congress, though -- the ongoing inability of current-generation biodiesel to compete with oil. Ethanol has found it easier to compete since the first generation of companies collapsed and stronger companies like Valero stepped in. The good news is that companies including Valero are beginning to explore biodiesel. But any recovery that results will likely take years.