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: Impacted food prices
1/5/2010 6:43:16 PM
I wish I knew where the money of the food price increase actually went.
Demand for cereal grains is up, from both food and feed consumption and biofuel use, but the price actually paid to the farmers is still the same. In the 1970's corn sold in the range of $2-$3.5 per bushel, today a farmer still gets the same price. Some are lucky to contract some at close to $4 per bushel if it is a dry year and production is lower, but all in all they make the same now per bushel as then. The problem is the price of their fuel, land, labor and equipment has not remained the same. In 1970 you could buy good cropland for $1000 per acre on the high end, now it is selling for upwards of $4000 per acre. Fuel was $0.35 per gallon now it is $2.60 per gallon. A tractor sold for $5000 now one the same size sells for $40,000. A good job on a farm then paid a little over $1 per hour, try hireing someone for that hard work now for less than $10 per hour.
Prices are rising for a fact, yet it seems it never trickles down to the bottom to the farmers. People like to talk about the corn last summer that was $8 per bushel but talking to some farmers this weekend I found that hardly any got that price, in fact most who were fordward looking enough to contract for that price ended up getting almost nothing because a law allowed the purchasers cancel the contracts if the price fell a certain amount. It wasn't in the contracts but was instead a law in place to protect risky investors like the biodiesel and ethanol producers. ( It was in the newest issue of Progressive Farmer Magazine but it is at my parents house so I can't get the exact reference ) It works that if the buyer files bankruptcy they don't have to pay the farmer as a creditor and the farmer ends up having to sell that corn on the market as current prices. Another article was about farm profitability being down 50% from last year because of the fall in prices also.
What it really seems to me is that both ends of the food supply chain are getting screwed, the consumer and the producer, with someone in the middle raking in all the money.
"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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