It’s pretty obvious by now, to everyone except Washington, that the $1.00 per gallon tax credit for biodiesel producers isn’t working. What it has seemed to accomplish however, is to drive the cost of soybean oil up by $1.00 per gallon. Bravo. As of today, soybean oil is $.37 per pound or $2.77 per gallon. Diesel is $1.45 per gallon at the rack (before taxes). The math is pretty simple.
So after all this talk of making a “green” economy, biodiesel and ethanol plants are shutting down because they can’t compete with petroleum (again) and the Ag companies are raking in cash. What’s the best part? The biodiesel companies have to file all the paperwork with the IRS and wait a couple of months to get their subsidy back! The Ag companies get their cash up front, and have no extra paperwork to file for it. Nice.
Seems like we never learn.
What should they do? Well, for starters, the tax credit should be indexed against the market. Having a flat $1.00 per gallon credit just doesn’t make sense. Second, the credit should be given in such a way that it provides incentive for CONSUMERS to purchase biodiesel instead of to the producing companies or feedstock suppliers. Less paperwork for us, direct benefit to the consumer (who’s the one actually using the fuel).
Alternatively, in an environment where Ag companies are used to price supports and price fixing, it’d also be nice to see a fixed price per gallon for inedible soybean oil that is specifically used for biodiesel, and mandatory allotments that must be sold. (Think tobacco, and it doesn’t sound that harsh.)
Whatever the solution, what we’re currently doing isn’t working. Everybody seems to be getting fat except the industry that is supposed to benefit from it. Don’t believe me? Ask any biodiesel producer about the wonderful US EPA Renewable Fuel Standard and RIN credits. As a biodiesel producer who typically sells pure biodiesel, we don’t get a penny of the RIN credits unless we actually blend the fuel down to B80 (80% biodiesel / 20% diesel) or less (which means we have to become a petroleum blender). The credit ends up getting passed on to, you guessed it, the petroleum industry for all their “hard work” in blending the fuel and selling it. Again, great work Mr. Bureaucrat, you’ve stuffed more money in the Big Oil’s pocket once again.
Hey, I’m ready for that “Change” everybody was singing about back in November. It can start any time.