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The rollback of a $1/gallon federal tax credit on biofuels threatens to sink many small biodiesel producers across the country.  (Source: Alibaba)
Without the $1/gallon federal tax credit, the biodiesel industry no longer appears commercially viable

While most are hoping that the U.S. can transition to electric vehicles and vehicles running on sustainable biofuels, this last year has made it clear that the process will be no walk in the park.  Recent studies showed that, in their current form, hydrogen cars emit more carbon over their lifecycle than gas cars.  And early consumer electric vehicles, like the BMW Mini E, while low emissions, have suffered from a variety of temperature related woes.

Now the biofuels sector has become the latest green transportation field to suffer disappointment in 2009.  The year started off rocky with the European Union in March unveiling import-killing tariffs on biodiesel and other biofuel.  Then, as the U.S. recovered from the recession, diesel prices dropped 18 percent off their highs, making it harder to justify the high costs of biodiesel.

Now another nail has been placed in the commercial biofuel industry' coffin -- the government $1/gallon federal tax credit will expire this Friday.  And for many businesses in the industry, it may be the last; amid a frustrating market, many biodiesel makers across the U.S. say they will likely call it quits and cease production when the credit ends.

The largest biodiesel refinery, located in Houston, Tex. has already shut down.  Another large refinery, located in Hoquiam, Wash. has been shut down as well, following a December explosion. 

However, it's not just big businesses that are cutting biofuel production and jobs.  Small businesses are also suffering.  Dwight Francis of Valliant, Okla. launched a new biodiesel venture earlier this year when the local timber economy tanked.  He was producing 12,000 gallons of biodiesel fuel per week by mid-year, and his business was viable, thanks to the $1/gallon tax credit.  Now with the credit gone, he says he's shutting down the promising startup.

He bemoans, "By the time you buy the feedstock and the chemicals to produce the fuel, you have more money in it than you get for the fuel without the tax credit.  We won't be producing any without the tax credit."

Congress and the U.S. Environmental Protections Agency have set the ambitious benchmark of producing 36 billion gallons of home-grown biofuel a year by 2022, reducing dependence on volatile foreign oil.  The prospects of achieving that goal now look bleak, according to government officials.  States Robert McCormick, principal engineer at the Department of Energy's National Renewable Energy Laboratory, "You could say the entire biofuels industry has had a rough year."

Despite these setbacks both optimism and debate on biofuels remains high.  Many liken the departure from traditional gas combustion to EVs, fuel cell vehicles, and biofuel vehicles to be similar to other past modern technological breakthroughs such as the computer, internet, airplane, and railroad.  These past innovations only reached consumers thanks to massive subsidies and investment of both money and land from the U.S. federal government.  Many argue that similar investments are needed to allow the alternative energy transportation industry to reach viability.  The real question, many say, is which candidate(s) is/are best to invest in (EVs, fuel cells, and/or biofuels) and when and how much should be invested.

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By Connoisseur on 1/4/2010 10:55:16 AM , Rating: 2
I feel like there's an interesting argument to be made here on both ends. On one hand, these companies would not have been viable in a free market economy (on account of the tax credit) so there's an argument against government spending.

On the other hand, if you are a believer in sustainable/renewable living, then products like biofuels should be explored. If we let free market forces take full effect, isn't it true that biofuels wouldn't really have been an option until the price of traditional fuels hit a tipping point. By then, the rising price of fuel would already hit the consumer in the wallet and it would STILL take an extensive period of development to get biofuels up to similar prices (assuming development from scratch) so this market will end up costing consumers a lot.

I hope my points were clear. I'm running on 3 hours of sleep. Basically, I'm not personally a full free market believer. I believe free market is a reactionary force rather than a proactive force. Now that might be fine for most situations, but in other situations people may end up suffering in the short term until the market adjusts...I guess in this case, it all depends on how people feel about the whole renewable resources movement...

By funyun on 1/4/2010 11:21:10 AM , Rating: 1
The free market is neither reactionary nor proactive. It is whatever the people want it to be. The only real requirement is that the business makes money.

In this case, biofuels were only worthwhile with the subsidies, without them, they are not profitable. Biofuels will become an option when either they are cheaper than gas, or gas becomes more expensive then bio.

I see what your concern is, that gas will go out the door too fast for bio to fill the gap.

The problem is that gas prices are volatile do to politics much more than they are to actual demand/supply. Thats why the market for bio did not takeoff even with the subsidies.

Since politics can change on a whim, changing your entire fuel source is a gamble on politics not market forces, which are hard to impossible to predict.

By AEvangel on 1/4/2010 11:37:22 AM , Rating: 3
The free market is neither reactionary nor proactive.

Um, yes it is, not that we have a free market right now, but a true free market is completely reactionary and proactive.

Competition is at the heart of free market and Competition at it's core requires competitors to be able to react to the market as well as proactive to keep ahead of other competitors.

By HotFoot on 1/4/2010 12:42:41 PM , Rating: 5
I think it makes sense - thinking of the subsidy as a research investment. The question is, what's the best bang for the buck? Is the subsidy an efficient way to go?

The other question I have is about financial leverage. If the government spending $1/gallon keeps another $2 or $3 circulating within the domestic economy rather than going overseas, it might very well end up being a cost-neutral program. Given that the subsidy had propped up a fledgeling industry that may very well turn into a major one not needing subsidies down the road, I think it would probably have been better to slowly scale back the subsidy rather than kill it outright.

By Kurz on 1/4/2010 7:08:39 PM , Rating: 3
I rather see Bio-Diesel than Corn-Based Ethanol.
Still the cost to the public is small compared to the crazy spending the government does.

By knutjb on 1/5/2010 12:21:34 AM , Rating: 3
Please tell me what industry became free standing and a long term success through government handouts?

It would be easy enough to stop the money going offshore by using our own resources first. Instead we are frozen by the droning Hippocrates who don't want oil at any cost, or anything else.

Use wind or solar but you can't run the power lines.

No carbon, but no nuke.

Hydrogen outputs more carbon than it saves, of course, without Nuke plants hydrogen is a waste of time.

Can't do coal gasification for synthetic diesel or jet fuel because it's coal, even if its cleaner than petroleum sourced fuel and IS economically viable with oil over $40 a barrel. That is until environmentalist tie any progress up in court for decades.

Stop all carbon emissions now and replace it with green renewable energy now! Ok, what viable green power do you propose? Remember it must be commercially viable without subsidies and can be made available to all.

That's what I thought man is the center of all that is killing this planet. Get rid of man and all will be good. Yet another non-viable solution.

More diatribe with no solution is all that green energy provides.

"Paying an extra $500 for a computer in this environment -- same piece of hardware -- paying $500 more to get a logo on it? I think that's a more challenging proposition for the average person than it used to be." -- Steve Ballmer

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