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Biodiesel Tax Credit Hangs in Balance

Study Shows Tax Credit Allows Biodiesel Industry to Remain Competitive

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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The biodiesel industry is hopeful Congress will pass an extension of the biodiesel blenders tax credit. (DTN photo by Nick Scalise)

OMAHA (DTN) -- Any hope for an extension of the biodiesel blenders tax credit may depend on whether it can be attached to must-pass legislation at the end of this year or the beginning of next, officials with the industry and one federal lawmaker said on Tuesday.

The $1 blenders credit expired in June, 2017. Since then there have been legislative attempts to finish a multi-year extension.

Congress faces a Nov. 21 deadline to keep the government open and there's talk in Washington about passing temporary spending measures as soon as next week.

Since losing the credit, the industry has come on hard times. Nine biodiesel plants either closed or slashed production. Despite industry struggles, there continues to be uncertainty about whether the credit will be renewed.

"There's strong support within both bodies," said Kurt Kovarik, vice president of federal affairs for the National Biodiesel Board. "This Congress has been unable to do a lot of big things in recent months. Many of these things hitting a roadblock need to be cleared by the end of this year."

So far, there have been three separate bills offered in Congress, including legislation for a two-year extension of the tax credit in both chambers and a third bill marked up in the House Ways and Means Committee to grant a three-year extension.

"We don't anticipate House action on the floor or in the Senate on the three-year extension," Kovarik said during a press conference on Tuesday. "The expectation is that negotiations will come together to recognize a grand deal on tax policy. We don't expect to see floor time in either body and it will more likely be a year-end deal."

Kovarik said the industry has been working to "get Congress to recognize the urgency."

Last week, 40 House Democrats wrote a letter to Speaker Nancy Pelosi, D-Calif., urging her to take up the biodiesel tax credit and other clean energy tax extenders. Read the letter here: https://finkenauer.house.gov/…

"Participants up and down the supply chain are experiencing hardship as a result of this lengthy lapse in the credits," the letter said. "At least nine biodiesel refining plants have already closed or significantly reduced production, and suppliers of seed, fertilizer and even farm machinery have experienced a precipitous drop in demand and layoffs are occurring as a result."

Sen. Charles Grassley, R-Iowa, said during his weekly conference with agriculture journalists on Tuesday that renewing tax extenders used to be something both parties would support.

"Now there doesn't seem to be bipartisanship," he said. "I just don't hear this from the Democrats."

Grassley said discussions have been ongoing at the committee level about extending the biodiesel and other tax credits but "no agreement."

On Monday, more than 60 groups representing a cross section of industries including biofuels, agriculture, petroleum marketers, transportation, and others, wrote a letter to leadership in both chambers asking for a tax-extenders package to be finished by the end of the year, including the biodiesel blenders credit.

TAX CREDIT ECONOMICS

With continued doubts about the fate of the biodiesel tax credit, there continues to be many real-world effects from allowing the credit to lapse.

The National Biodiesel Board released a study on Tuesday looking at what the tax credit means to both biodiesel and agriculture.

The study authored by John M. Urbanchuk, managing partner of ABF Economics, said the most-recent lapse in the credit is the longest in the history of the industry.

"The current uncertainty surrounding reinstatement and retroactivity of the tax credit is a significant disincentive for the U.S. biodiesel industry (blenders and producers) and has constrained industry expansion," Urbanchuk said in the report.

"Absence of a tax credit and uncertainty is one major reason the industry is operating at only 70% of industry production capacity. The uncertainty is forcing some producers to shut down production."

The report found with relatively low petroleum diesel prices in 2016 and 2017, the biodiesel tax credit helped biodiesel compete in the market. The credit allowed biodiesel producers to expand market share.

As prices for ultra-low sulfur diesel rose in 2018, biodiesel's reduced production costs and renewable identification number values allowed the industry to compete while the market expected a renewal of the tax credit.

National Biodiesel Board Chief Executive Officer Donnell Rehagen said farmers have been hurt by the expiration of the biodiesel tax credit.

"When the credit is uncertain it threatens the farm economy as well," he said.

Since the credit expired in June 2019 U.S. Energy Information Administration data show biodiesel production in the United States fell by 8%. In addition, feedstock purchases by biodiesel plants from farmers is down 20%.

Urbanchuk said the lack of the tax credit has created less demand for biodiesel.

"The industry is bleeding cash," he said. "The tax credit is an essential element in profitability and growth."

Read the report here: http://kce.informz.net/…

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @toddneeleyDTN

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Todd Neeley

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