November 5, 2009 (Erie, PA – AgNewsWire) – HERO BX, the country’s largest producer of biodiesel, has been awarded a $1,640,250 million grant from the Commonwealth Financing Authority. HERO BX is matching the award amount with its own funds for a total of $3,280,500. The money will be used to complete the company’s expansion project – increasing their yearly output of low-cost, high quality biodiesel, from 45 million gallons to 55 million gallons.
Biodiesel producers are worried the wait for the renewal … or even worse, the failure of renewal … of a crucial tax credit, set to expire in just more than a month, could be a death knell for the industry.
Let’s face it. Biodiesel can use all the help it can get.
The production of biodiesel is being assisted by a $1 per gallon tax credit for companies that blend biodiesel with petroleum diesel. Passed in 2004, the subsidy helps to make biodiesel competitive with petroleum diesel and there was a boom in the construction of biodiesel plants soon after the legislation was passed.
In 2007, legislation was passed in the U.S. Congress that is supposed to require the blending of 500 million gallons of biodiesel by 2009. And that was supposed to double to 1 billion in 2012.
The Environmental Protection Agency is tasked to execute the requirements of the law. And, while things have been going along fairly smoothly concerning ethanol, the agency has not approved any rules pertaining to biodiesel. To make matters worse for the industry, there are new European trade barriers that block the export of U.S. made biodiesel to Europe. Many producers were depending on the European market until the U.S. market could grow.
The result of all this is a reduction in the number of biodiesel plants in the U.S. For example Texas, which had 31 plants with the total production capacity of 726 million gallons a year, has seen half of them close. The problem is that diesel is not very popular in the U.S. Currently, biodiesel plants in the U.S. have the ability to produce about 2.5 billion gallons a year. However, more than half of that capacity is not being used.
Now the $1 per gallon tax credit is supposed to expire on December 31. There is legislation pending in both houses of Congress to extend the credit. But it is said that the bill in the House of Representatives will have to be attached to another bill to give it any chance of passage. Moreover, the Congress is now emerged in other seemingly more important issues like healthcare and global warming. The biodiesel industry is fearful that the legislation will not pass before the end of the year.
And even if the bill is passed in early 2010 and the credit is granted retroactively, the biodiesel industry will still suffer. That’s because producers just don’t have the capital to keep going with hopes that a bill will be passed. Companies that buy the biodiesel and then blend it to get the credit won’t buy the biodiesel if there is no tax credit. Analysts are actually saying that if the bill is not passed, then that could mean the death of the biodiesel industry in the U.S.
Needless to say, the industry is worried. And the clock keeps ticking.