US energy market wouldn’t notice loss of biodiesel

Bob Tippee
Editor

Live by the subsidy, die by the subsidy. Because a generous tax credit for biodiesel expired at the end of 2009, makers of the fuel fear commercial demise is near.

Distracted by the politics of health care reform, Congress didn’t extend the $1/gal credit for blenders of the diesel substitute made from soybean oil, yellow grease, or animal fat.

Loss of the credit would ruin biodiesel economics already squeezed by adverse margins between diesel prices and feedstock costs. Producers of biofuels are reported to be closing plants and laying off workers.

If hype were true, US employment (green jobs!) and energy supply (home-grown energy!) should feel strain from the threat to biodiesel.

They do not.

According to Sen. Chuck Grassley (R-Iowa), the biodiesel industry lost 29,000 jobs last year after supporting “more than 51,000 green jobs” in 2008.

The decline, however difficult for the workers involved, represents less than 0.2% of the 15.3 million Americans out of work in December.

And imperiled biodiesel production is even less consequential to energy supply.

In the first 9 months of 2009, according to the Energy Information Administration, biodiesel output averaged 23,500 b/d. That’s 0.1% of the US oil market. And 54% of it was exported, 37% net of imports. If biodiesel production ceased, the market wouldn’t notice.

For commercial reasons, moreover, biodiesel growth had stalled before Congress got busy with other concerns.

Last year’s January-September production average was down from 38,200 b/d in the comparable period of 2008 and barely up from 2007.

But total-year tax credits were worth $776 million in 2008 and $490 million in 2007 to the good green folks who made and blended the material and who now need only to hang on.

Congress will reinstate the subsidy. It will have to if biodiesel sales are to triple as they must to meet a mandate at the plateau level taking effect in only 2 years.

Besides, those shiny, tiny biodiesel plants provide wonderful photo opportunities for lawmakers who want to appear to have acted meaningfully on energy but who have no real idea how to go about it.

(Online Jan. 22, 2010; author’s e-mail: bobt@ogjonline.com)

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