Why Buying a Biodiesel Plant Now Makes Sense

Most people in the biodiesel industry recognize this is currently not a good market for biodiesel. In fact, some consider this one of the worst markets we have had. Personally, I think in 2011 and 2012 when diesel fuel was over $4.00 per gallon it was hard to be in the biodiesel business. It took a ton of cash to just operate, much less make a profit.

Fast forward to 2019. The Trump administration has been devaluing the EPA RFS RIN value, and undermining some of the need for biodiesel and renewable fuels in general. California has implement the Low Carbon Fuel Standard, which essentially sucks all of the biodiesel and used cooking oil westward (poor Californians, paying $3.75 for gasoline when it’s $2.35 in NC). Then we have the federal $1 per gallon biodiesel tax credit, which once again has lapsed and Congress is taking their sweet time to renew. This tax credit is supposed to keep biodiesel price competitive to diesel fuel, which already gets subsidies permanently built into the tax code.

Still reading? Good. Here’s the sweet part: The biodiesel tax is coming back. It ALWAYS comes back, and I’m highly confident it will be renewed again, and since they’ve waited so long to renew it this time, it will almost certainly be a multi-year program. As soon as it does, the biodiesel industry starts booming again. So for every gallon of biodiesel made, the producer/blender gets $1.00 from the federal government. But that’s not the best part.

What is?

The federal biodiesel tax credit is NON-TAXABLE income.  It isn’t counted as income for the sale of the fuel. This means the tax credit is worth $1.10 plus your corporate tax rate, or $1.485 per gallon if you’re in the 35% tax bracket. 

So if you own a shipping company, pavement company, or other entity that has a high diesel fuel expense, not only can you get cheaper fuel to blend with diesel, it can also significantly offset other gains from your businesses. Heck, if you own ANY business and the biodiesel plant is a subsidiary, you can offset other gains from that business. Better yet, you may show losses on the tax return from that plant and use carryforwards for the next year(s). Now, nobody here is a CPA and this isn’t tax advice, but from our own experiences we believe this might be a good strategy for some business to offset their tax burden AND get renewable energy at the same time.

S.944-“The American Renewable Fuel and Job Creation Act of 2017” and Why You Should Care

So what’s the big deal about the latest version of the biodiesel tax credit bill submitted by Senators Grassley and Cantwell last week?

The bill is available in full text for your review here, but here are some highlights that make it important for domestic producers here in the USA:

  1. Producer’s Credit – The credit has been changed from a blender’s credit to a producer’s credit, meaning the actual entity making the biodiesel is the one eligible for claiming the credit.  This is important because currently most biodiesel producers are pressured to split the tax credit with blenders as B100 since the tax savings are actually worth more than the $1.00 credit.   It still will likely mean that feedstock prices go up for biodiesel producers, and there still may be pressure on the sell side for indexing biodiesel at a discount to heating oil, but the credit would be solely for the producer.  The bill does not indicate if the credits would be transferable.
  2. Multi-Year Credit – The extension would be from December 31, 2016 (retroactive) to December 31, 2020.  This would be the longest extension of the biodiesel tax credit on record, and would finally offer some stability to the biodiesel market.  This is a big deal.
  3. Domestic Production – A critical component of this bill is that it limits the credit to domestically produced biodiesel only.  Imported biodiesel from other countries would not be eligible for the tax credit.  This is a huge win for domestic biodiesel as it places them on a fair footing with imported biodiesel, and it means that US taxpayers are no longer subsidizing foreign produced biodiesel.
  4. Small Producer Credit – Small biodiesel plants under 15 million gallons per year are able to claim an extra .10 per gallon credit.
  5. Agri-biodiesel Definition Removed –  This changes indicates that the small producer credit is available for all feedstocks used in producing biodiesel.

In short, this is a big win for biodiesel if it’s passed as currently written.  Biodiesel NEEDS this tax credit bill to pass in order to gain some stability in the marketplace.

Want to help?  Call your senators today and tell them to support Senate Bill 944.  Ask for the “Energy Desk” and tell them “you want them to support S.944 for the biodiesel tax credit”.  Seriously, that’s it.  No long speeches or explanations needed, you don’t even have to tell them why.  Just call (email is not as good) and tell them you want them to support S.944.

New Administration – New Era for Biofuels?

For most, it’s hard to guess what is going to happen for biodiesel under the Trump administration.   On the one hand, Trump appears to be in favor of petroleum and against the wasteful spending on pet renewables like Solyndra.   On the other hand he is pro-business and wants to reduce government regulation, which biodiesel has seen more than its fair share of in the last 8 years.

The biodiesel tax credit expired 12/31/2016.  There are two new bills pending for its renewal, one in the house (H.R. 5240) and one in the senate (S. 3188).  The tandem bills would extend the incentive through 2019 and reform the tax incentive to a producer’s credit aimed at domestic production.  This would seem to be in favor of Trump’s “America First” agenda, as it would create domestic jobs, domestic revenue, and prevent American tax dollars from subsidizing foreign imported biodiesel.

We encourage all biodiesel stakeholders to contact their elected officials in Congress and press for Congress to extend the biodiesel tax incentive.  This needs to happen sooner than later.  Waiting until 2018 to renew it retroactively WILL KILL more small and medium sized biodiesel plants, just as it has already in North Carolina and other states.  In 2010, there were 6 biodiesel plants in North Carolina.  In 2017, there are only three left, and none of them have shown any significant revenue or production growth to brag about.

To reach your senators’ offices, call the Senate switchboard at 202- 224-3121 or visit the Senate website here. Unless you already have a contact at the office, ask to speak to the staffer who handles energy or tax issues.

To contact your U.S. Representative call the House switchboard at 202-225-3121 or visit the House website here.

Congress has used tax incentives to stimulate domestic energy production for more than 100 years. Since being implemented in 2005, the biodiesel tax incentive has played a key role in stimulating growth in the U.S. biodiesel industry, helping it become the first EPA-designated Advanced Biofuel to reach commercial-scale production nationwide. By helping biodiesel compete on a more level playing field with petroleum, the $1-per-gallon tax credit creates jobs, strengthens U.S. energy security, reduces harmful and costly emissions, diversifies the fuels market, and ultimately lowers costs to the consumer. There is a clear correlation between the tax incentive and increased biodiesel production, which has grown from about 100 million gallons in 2005, when the tax incentive was first implemented, to almost 1.8 billion gallons in 2014.

However, unlike billions of dollars in petroleum tax incentives written permanently into the tax code, the biodiesel tax incentive faces tremendous uncertainty as Congress has passed short-term extensions and allowed it to temporarily expire repeatedly in recent years, including for most of 2015. This has created significant disruptions in the industry. The annual threat of losing the tax incentive has stunted growth, limiting biodiesel producers’ access to capital and investment while restricting their ability to expand and hire new employees. With less than a decade of commercial-scale production, biodiesel remains a young and maturing industry that needs stable, long-term tax policy to continue meaningful growth.