Biodiesel Companies Folding Left and Right, After Gov't Cuts Tax Credit
January 4, 2010 10:30 AM
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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.
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
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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RE: Interesting argument between capitalism and government intervention
1/4/2010 11:21:10 AM
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.
RE: Interesting argument between capitalism and government intervention
1/4/2010 11:37:22 AM
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.
"What would I do? I'd shut it down and give the money back to the shareholders." -- Michael Dell, after being asked what to do with Apple Computer in 1997
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