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.
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.