Iowa needs biodiesel tax credit back
JOHNSTON, Iowa — The loss of a federal biodiesel tax credit has been devastating in Iowa, said Monte Shaw, executive director of the Iowa Renewable Fuels Association.
The credit expired Dec. 31, 2009 after the bill stalled in the Senate. It leveled prices between biodiesel and petroleum-based diesel.
Sen. Chuck Grassley of Iowa and Sen. Max Baucus of Montana have spoken out in Washington about the tax credit’s importance. Gov. Chet Culver, chairman of the Governors' Biofuels Coalition, sent a letter Jan. 20 to President Barack Obama, asking him to work with Senate leadership to get the credit retroactively extended. The governor also testified Jan. 21 before a Senate subcommittee in Washington, D.C., about the importance of extending the credit immediately.
Iowa's biofuels industry is an $8 billion industry supporting about 80,000 jobs.
According to the Iowa Biodiesel Board, almost half of the state's biodiesel plants are idle or closed due to a combination of factors including the lapse of the credit.
"There a few running on what I would call ‘trickle capacity," said Shaw."...We’ve had to lay off people. It’s not what anybody wants to do...This was just a matter of: Congress failed to do its job."
Iowa needs the credit extended, he said.
"Until it’s extended, there is no market for biodiesel of any size because very few people are willing to buy it today," he said.
Iowa has a state biodiesel tax incentive and its hoped the Legislature enacts a mandate this year requiring all diesel fuel in Iowa contain five percent biodiesel. This would create more demand.
Renewable Energy Group based in Ames has a network of nine biodiesel plants in Iowa, Illinois, Texas, and Minnesota. Six are in Iowa. Combined, the nine plants could make up to 302 million gallons of biodiesel each year.
"We are without a doubt one of the few market leaders and have been in the last eight to 10 years of biodiesel," said Brad Albin, REG’s vice president of manufacturing.
Like others in biodiesel, the company ran into challenges last year with volatile oil prices, European tariffs that hurt exports and the Environmental Protection Agency didn't make official a renewable fuel standard that would increase biodiesel demand. Still, REG's production and sales were increasing by 10 percent each month in the last half of 2009.
"We thought we saw the light at the end of the tunnel, but the biodiesel tax credit didn’t get passed," Albin said.
REG's production is down 50 percent from 2009’s fourth quarter. Of their nine plants, six are operating but with very low production rates.
"We have already had lay-offs at two of the plants and people have already had to accept wage reductions," he said.
"Over the next few weeks, if things don’t go the right way, it’s going to continue to more negatively affect where we’re at right now. It not only hurts people’s jobs and getting laid off, it hurts farmers, it hurts soy prices, it hurts livestock, it even gets into corn ethanol because one of the big deals is we’re starting to take corn oil off plants to produce biodiesel. It’s a wide ranging effect," Albin said.
Shaw said without the tax credit and the renewable fuel standard, it’s amazing Iowa has as many biodiesel plants left as it does. Investors answered the call of the federal government after the terrorist attacks on 9/11 to develop home-grown fuels, but the government isn’t following through on its side of the deal to help biodiesel remain profitable, Shaw said.
"It’s pushing the plants toward bankruptcy. They’re madder than hell and they ought to be...If the federal government didn’t want us to do this, they shouldn’t have asked us to do this," said Shaw.
REG’s Albin thinks the credit wasn’t extended simply because Senators got hung up on the health care debate.
"I don’t think they realized how important this was," he said.