Government Programs and the Biodiesel Industry: A 2010 Outlook

As 2009 came to a close, several government programs that impact the biodiesel industry—both in the U.S. and internationally—remained uncertain. The final determinations on these programs will play a significant role in how the U.S. biodiesel industry produces and markets its product.

The renewable fuels standard (RFS2) was modified in 2007 to require that advanced biofuels reduce life-cycle greenhouse gas (GHG) emissions by 50 percent relative to gasoline sold or distributed in transportation. In May 2009, the U.S. EPA proposed rules that took into account indirect land use changes when calculating GHG emissions. Based on the EPA’s preliminary findings, soy-based biodiesel was found to reduce GHG emissions by only 22 percent, which would disqualify it from counting towards RFS2. Biodiesel from animal fat was found to reduce GHG emissions by approximately 80 percent. The EPA’s draft results did not measure biodiesel produced from corn oil. The EPA has announced that it intends to publish final rules prior to the end of 2009; however, as of the date this article went to print, such final rules have not been released. The EPA has suggested that the final rules will take into account estimates for the uncertainty of the inclusion of indirect land use changes in its calculations of GHG emissions. Depending upon the outcome of the final rules, biodiesel producers should be prepared to respond accordingly—as the rules will likely impact demand for any feedstocks favored or disfavored by the rules.

Another significant government incentive for the biodiesel industry is the biodiesel blender tax credit, originally created in 2004. The credit provides a $1 tax credit per gallon of pure biodiesel to the company that first blends the biodiesel with petroleum-based diesel. The credit was originally set to expire on Dec. 31, 2008, but was extended until Dec. 31, 2009 as part of the Emergency Economic Stabilization Act of 2008. A bill known as the Biodiesel Tax Incentive Reform and Extension Act of 2009 (Senate Bill 1589) has been introduced; however, as of the date this article went to print, the bill had not moved past the Finance Committee. If the credit is not extended again, or if the extension includes overly restrictive limitations, it will have a negative impact on the biodiesel industry’s ability to compete with petroleum-based diesel, and the biodiesel industry will need to develop strategies to counteract this disadvantage.

On March 12, 2009, the European Commission applied temporary duties on imports of biodiesel from the U.S., while it continued to investigate the evidence of unfair subsidies and dumping of U.S. biodiesel imports into the European Union. Beginning on July 13, 2009, the EU decided to impose tariffs on biodiesel imported from the U.S. for a period of five years. The U.S. government has stated its opposition to these tariffs and is in the process of reviewing this decision, but it is unclear what, if anything, can be done in response. Until a modification to the tariffs can be implemented, or the five year time period expires, biodiesel producers will need to focus their marketing efforts on targeting non-European markets and increasing demand in the U.S.

During this volatile time in the biodiesel industry, producers should stay apprised of developments in government programs, in order to best position their business to respond to the changing climate.

Kristi Harshbarger is an attorney with BrownWinick, a Des Moines, Iowa-based law firm serving the renewable fuels industry. Reach her at (515) 248-6627 or klh@brownwinick.com.