Home » MBJ FEATURE » State biodiesel industry in danger (UPDATE)

State biodiesel industry in danger (UPDATE)

 

Scott Biodiesel plant in Greenville, the state’s largest operating biodiesel plant, will soon be shutting down due to the lapse in the federal $1-per-gallon tax credit. The plant has the capacity to produce 20 million gallons of fuel per year and cost more than $30 million to build.

Scott Biodiesel plant in Greenville, the state’s largest operating biodiesel plant, will soon be shutting down due to the lapse in the federal $1-per-gallon tax credit. The plant has the capacity to produce 20 million gallons of fuel per year and cost more than $30 million to build.

Without federal subsidy, most Mississippi plants will have to shut their doors in 2010

Congress failed to renew the $1-per-gallon biodiesel tax credit on Dec. 31, 2009, and biodiesel plants across the country are shutting down. The tax credit has been in effect since 2005. Senate leaders plan to pursue an extension of the credit sometime this spring.

Experts have said Congress’ failure to renew the biodiesel subsidy will halt the biodiesel industry, cost thousands of green jobs and negatively affect the agriculture industry.

Without the federal tax credit, “there is absolutely no reason to keep producing biodiesel,” said Mike Tuttle, vice president of Scott Petroleum Corp., based in Itta Bena. The Scott Biodiesel plant in Greenville is the state’s largest operating biodiesel plant, able to produce up to 20 million gallons of fuel annually. The plant cost more than $30 million to build.

Since biodiesel costs more to produce than petroleum diesel, biodiesel can only be sold competitively with regular diesel after the $1-per-gallon price reduction.

The credit allows the company to “hope to break even,” Tuttle said. Biodiesel production is not currently profitable. Engineers are working to reduce cost of production on this recently developed technology, Tuttle said, but 95 percent of biodiesel production cost is in feedstocks.

Biodiesel plants convert vegetable oils, often from corn or soybeans, or animal fats into biofuel.

The Scott plant employs a total of 25 people and is a 24-hour operation.

The federal government has said it wants to use all measures to reduce our dependence on foreign oil, Tuttle said, and “we’ve done our part in making the investment… We ask that they leave the mechanisms in place that influenced our decision to invest.”

According to National Biodiesel Board, the United States uses 20 million barrels of oil daily.

Tuttle said Scott Petroleum made its biodiesel investment for two reasons: to reduce dependence on foreign oil and to support the agricultural industry, which is the largest part of the company’s customer base. We want to help farmers and their commodity pricing, Tuttle said.

Scott Petroleum was established in 1935, and operates in Mississippi, Louisiana and Arkansas with more than 260 employees. It has bulk plants and seven convenience stores and sells gas, diesel and propane to the commercial, agricultural and residential markets.

Since Scott Petroleum has the benefit of being a diverse company, it may consider operating through February until its feedstock supply runs out, said Blake Ferretti, supply and distribution manager.

Delta Biofuels Inc. in Natchez is waiting to see what Congress will do, “but in the mean time, we’re dead,” said company president Clint Vegas. “One thing I’ve learned is never depend on the government … It’s frustrating to have a big plant sitting doing nothing,” he said.

Delta Biofuels is tied with another plant as the second-largest biodiesel plant in the nation with the capacity to produce 80 million gallons of fuel per year. The plant has been producing since 2007, but has only produced about 20 million gallons of fuel annually due to low demand.

Vegas said it would be reasonable to say the value of the plant is approximately $80 million.

For the most part, the plant has not been operating since the end of the summer due to high soybean prices and changes in the Renewable Fuels Standard, said company president Clint Vegas.

The biodiesel industry was hurt in 2009 by the delay in the federal implementation of Renewable Fuels Standard (RFS-2), which requires the use of 500 million gallons of biomass-based diesel in 2009, and increases gradually to one billion gallons in 2012. Also, a rule was proposed with RSF-2 to disqualify almost 70 percent of domestic feedstock, mainly corn for ethanol and soy oil for biodiesel, from the program.

A European Union tariff on domestically-produced biodiesel also hurt the industry, Vegas said.

Mississippi biodiesel producers’ sentiments are echoed by industry producers in Iowa, a state with one of the largest numbers of biodiesel plants.

The Iowa Renewable Fuels Association (IRFA) director Monte Shaw estimated that less than three of his state’s 15 biodiesel plants would be operating in January, according to a December Oil Price Information Service (OPIS) report. Iowa’s plants can collectively produce up to 322 million gallons per year of biodiesel.

“Without the biodiesel tax credit, most (U.S.) biodiesel refineries will be forced to shut down production and lay off employees,” Shaw said. “It is a painful irony that Congress is still talking about passing a ‘jobs bill,’ but apparently can’t pass this simple extension that would save hundreds of green collar jobs in Iowa alone.”

Senate Finance Committee chairman Max Baucus (D-Mont.) and Senate Finance Committee ranking member Chuck Grassley (R-Iowa) told Senate leaders on Dec. 22 they plan “early in the next year” to move on an energy tax extenders package, according to an OPIS report. They are expected to extend the tax credits retroactively.

Grassley estimates 23,000 green jobs will be lost of the tax credit is not extended.

The ASA, however, says retroactive credits won’t work: Without the $1-per-gallon reduction, biodiesel would be significantly more expensive than petroleum diesel fuel, and consumers would not buy it. Plants are not going to make fuel to lose money.

Scott Petroleum favors a new bill supported by the National Biodiesel Board which, instead of extending the tax credit through one more year, would extend it through 2014.

An energy tax package, which included a one-year extension of the biodiesel tax credit, was passed by the House of Representatives on Dec. 9.

Original story:

If Congress doesn’t renew the biodiesel subsidy by Dec. 31, the biodiesel industry will come to a screeching halt, green jobs will be lost and the agricultural industry will be negatively affected, industry experts say.

Senate Finance Committee leaders announced yesterday (Dec. 22) that they planned to pursue a credit extension in early 2010.

“If Washington doesn’t extend the tax credit, there is absolutely no reason to keep producing biodiesel,” said Mike Tuttle, vice president of Scott Petroleum Corp. based in Itta Bena. “The industry will come to a halt Jan. 1,” he said.

Since 2005, a federal tax credit of $1 per gallon on biodiesel fuel has been in effect. Since biodiesel costs more to produce than petroleum diesel, biodiesel can only be sold competitively with regular diesel after the $1-per-gallon price reduction.

The credit allows the company to “hope to break even,” Tuttle said. Biodiesel production is not currently profitable. Engineers are working to reduce cost of production on this recently developed technology, Tuttle said, but 95 percent of biodiesel production cost is in feed stocks.

Biodiesel plants convert vegetable oils, often from corn or soybeans, or animal fats into biofuel.

The Scott biodiesel plant is located in Greenville and cost in excess of $30 million to build. The plant employs a total of 25 people and is a 24-hour operation. It has the capacity to produce 20 million gallons of biodiesel annually.

The federal government has said it wants to use all measures to reduce our dependence on foreign oil, Tuttle said, and “we’ve done our part in making the investment… We ask that they leave the mechanisms in place that influenced our decision to invest.”

Tuttle said Scott Petroleum made its biodiesel investment for two reasons: to reduce dependence on foreign oil and to support the agricultural industry, which is the largest part of the company’s customer base. We want to help farmers and their commodity pricing, Tuttle said.

Scott Petroleum was establish in 1935, and operates in Mississippi, Louisiana and Arkansas with more than 260 employees. It has bulk plants and seven convenience stores and sells gas, diesel and propane to the commercial, agricultural and residential markets.

· Soybean Farmer Effect

Allowing the tax credit to lapse will have negative repercussions for agricultural industry, particularly for soybean farmers, for whom the effects have already started.

The National Biodiesel Board announced Dec. 17 that the tax credit extension was not likely to be passed by year’s end, and soybean future prices for January 2010 dropped by 37.5 cents that afternoon. The following day they dropped an additional 10 cents. By Dec. 22 prices had fallen another 11 cents and were continuing to drop at press time.

The American Soybean Association (ASA) is among the groups lobbying for the tax credit extension.

· Where Is the Bill Now?

An energy tax package, which included a one-year extension of the biodiesel tax credit, was passed by the House on Dec. 9, but the Senate is still debating health care legislation and won’t address the tax extension package until next year, when it would likely retroactively extend tax credits.

Senate Finance Committee Chairman Max Baucus (D-Mont.) and Senate Finance Committee ranking member Chuck Grassley (R-Iowa) told Senate leaders on Dec. 22 they plan “early in the next year” to move on an energy tax extenders package, according to an Oil Price Information Service (OPIS) report.

Grassley has estimated 23,000 green jobs will be lost of the tax credit is not extended.

The ASA, however, says retroactive credits won’t work: Without the $1-per-gallon reduction, biodiesel would be significantly more expensive than petroleum diesel fuel, and consumers would not buy it. Plants are not going to make fuel to lose money.

Scott Petroleum favors a new bill supported by the National Biodiesel Board which, instead of extending the tax credit through one more year, would extend it through 2014.

Scott’s supply and distribution manager, Blake Ferretti, has written several Congressmen about the bill. Thad Cochran responded Nov. 17 saying the bill had been referred to the Senate Finance committee.

Ferretti said Scott Petroleum has the benefit of being a diverse company, selling products beyond biodiesel. It has purchased feed stocks for the plant which would last them through January and part of February. The may consider operating the plant until supplies run out, he said.

Tuttle’s sentiments are echoed by biodiesel producers in Iowa, a state with one of the largest numbers of biodiesel plants.

The Iowa Renewable Fuels Association (IRFA) director Monte Shaw estimates than less than three of his state’s 15 biodiesel plants will be operating after Dec. 31, according to an OPIS report. Iowa’s plants can collectively produce up to 322 million gallons per year of biodiesel.

“Without the biodiesel tax credit, most (U.S.) biodiesel refineries will be forced to shut down production and lay off employees,” Shaw said. “It is a painful irony that Congress is still talking about passing a ‘jobs bill,’ but apparently can’t pass this simple extension that would save hundreds of green collar jobs in Iowa alone.”

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