INSIGHT: Biodiesel Blenders Tax Credit—A Quick Fix for Rural America

Rural American is feeling the pinch. Between the trade war with China, biofuel industry struggles, and bad weather, farmers and the communities that surround them and are supported by them are in a rut.

There are few roads out of the abyss, but one fast, easy fix with broad, bipartisan support would have Congress quickly re-instate the Biodiesel Blenders Tax Credit (BTC) in the current discussions around year-end clean energy tax extensions.

Enacted in 2004, the provision has been renewed at least five times but expired in 2017. Now, after 23 months of expecting renewal, the industry is at a tipping point. If the BTC is not renewed, Congress is risking the significant economic gains rural America, the trucking industry, and American consumers have made thanks to the biodiesel industry.

Already, according to the National Biodiesel Board (NBB), 200 million gallons per year of capacity representing the equivalent of 20 median-sized plants (out of a total universe of 122 plants) is idle because of policy uncertainty. In 2019 alone, 10 biodiesel plants closed, idling more than 330 million gallons of annual production capacity, and total production is down 8%. This represents a decline from 2.5 billion gallons of capacity in the beginning of 2018 to less than 2.2 billion gallons today.

More plants will likely close in 2020 if there is no action from Congress. NBB said that “dozens of plants”—that is, a sizeable percentage of all plants in the industry—could be forced to close if Congress does not extend the tax credit. Companies that have made investments to build America’s biodiesel industry cannot be left hanging, and without certainty for the future, little additional investment will be likely despite biodiesel’s proven success and tremendous potential.

Most Beneficial, Widely-Supported Tax Extender

While the severe economic challenges are clear, it is also extremely timely as Congress looks to approve a package of tax extenders. It’s easy to get lost in a hodgepodge of more than two dozen temporary tax provisions, but from a practical standpoint, the BTC is the most widely-supported, beneficial, and passable because of its broad support and significant impact.

The BTC is well-positioned for passage, as its longtime champion is Senate Finance Committee Chairman Chuck Grassley (R-Iowa). Moreover, it affords the most potential for the American economy, doubling the positive revenue impact of any other proposed tax extender.

A new report from the industry experts at FTI shows that renewing the BTC is vital to GDP and farm revenue. Their report said the BTC could mean $15 billion in additional GDP and another $15 billion in agricultural revenues.

Farmers, who are also suffering from recent policy changes, stand to gain from a reinstatement of the BTC, with farm incomes rising substantially due to a combination of higher crop demands, and higher crop prices.

Biodiesel Capacity, Farm Revenues, Jobs Would Increase

Extending the credit by January 2020 could increase biodiesel capacity up to 644 million gallons by 2024. The socioeconomic benefits of the BTC over the next five years could mean $10 billion in additional farm revenues from increased demand and crop prices and $5 billion in additional grain and oil seed processing revenues.

Even more importantly, renewal could mean 30,000 new jobs on average supported throughout the U.S. economy and $1.8 billion per year in additional labor income. Overall, the BTC could inject $1 billion in new capital investment into the economy, mostly in rural communities, according to the report.

The credit also provides significant environmental and climate benefits. Biodiesel lowers GHG emissions by nearly 65% per gallon relative to petroleum-based diesel. In 2018, biodiesel enabled 17.7 million tons in GHG reductions, equivalent to taking 3.8 million cars off the road.

A pragmatic approach to stabilizing the industry would be to immediately and retroactively re-instate the BTC and allow it to decline over time, giving the biodiesel fleet enough headroom to transform into a set of producers better situated to face an uncertain market ahead.

The stakes are high, both financially and politically. There comes a time when not even Congress can ignore its own deadlines. Two years past the drop-dead date is about the limit. That’s where the plausible pretense that Congress accidentally missed a deadline is no longer tenable.

There is a consensus to act. Congress must seize the opportunity and give farmers, biodiesel producers, and rural America the relief they have needed for almost two years.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Ezra Uzi Yemin is chairman, president, and CEO of Delek US Holdings, a refining and renewable biodiesel producer.

Michael McAdams is president of the Advanced Biofuels Association, a trade association representing a wide range of technologies, feedstocks, and molecules within the advanced biofuels industry.