Analysis: Surviving Without Biodiesel Tax Credit

regdarlingWhile the expiration of the federal $1-per-gallon biodiesel tax credit (BTC) has been pretty tough on the industry this year, some biodiesel makers could survive without it. This analysis from The Motley Fool, a website that looks at investments, points to how biodiesel giant Renewable Energy Group and renderer and renewable diesel maker Darling International have business models that seem to make it possible, although not easy, to be successful without the credit that expired at the 2013.

REG, for example, anticipated the expiration and took that into account when doing their earnings forecast for the first quarter of 2014. And even while biodiesel production was even lower than the company anticipated, due to an abnormally cold winter that caused natural gas prices to spike, while feedstock costs rose and biodiesel prices fell, REG seems to be weathering the storm.

The silver lining is that Renewable Energy Group was able to produce positive adjusted EBITDA despite a barrage of unfavorable conditions. That can be chalked up to the company’s commitment to operational efficiency derived from willingness to invest in a national logistics network and the best process technology. And, of course, management’s focus on the long term.

Darling International is not focused solely on producing renewable fuels, but has taken advantage of its leading rendering business (animal fats and used cooking greases, or the inputs for diesel) to create the Diamond Green Diesel joint venture. Renewable diesel is a hydrocarbon, has a different molecular structure than biodiesel, and can capture higher RIN values as a next-generation fuel. Despite the advantages, it is still blended into the existing petroleum-based fuel supply, and therefore benefits from the BTC. Luckily, Darling International’s diverse business structure has insulated it from the expiration of the credit. In fact, the company has benefited from the increase in feedstocks since the end of last year.

The article goes on to say that while the return of the tax credit would be good news for REG and Darling, and of course, other biodiesel makers, at least these two companies show you could survive without the credit. In addition, the authors say this short-term uncertainty for biodiesel might present a great buying and investing opportunity if you’re looking at the long term.

Minnesota Biodiesel Mandate: I’m Not Dead Yet!

mdalogo1Minnesota’s biodiesel mandate, looking like it could take a hit, has risen up like a Monty Python character and shouted back, “I’m NOT dead yet!” Recently, we told you how the mandate was facing an uncertain future, as the date to finally move to B10, a 10 percent blend of the green fuel, is coming this year. But that put it dangerously close to another milestone of moving to B20 next year. But this article from Biodiesel Magazine says a compromise piece of legislation looks like it could preserve the mandate… just at a slower pace.

State Representative Clark Johnson is an ardent supporter of the biodiesel industry. Last month he introduced a bill for the agriculture department and the biodiesel industry seeking to modify future requirements regarding exceptions, what months higher blends should be required, and the date on which the state will jump from B10 to B20. His bill, House File 3203, missed a deadline to move forward, but Charlie Poster, assistant commissioner at the Minnesota Department of Agriculture, says the agency has made concessions to opponents of the increased biodiesel mandate by incorporating HF 3203’s language into an agency “unsession” bill (SF 2618) that is moving forward.

“The bill that’s signed into law probably won’t be HF 3203, but it will be that language,” Poster tells Biodiesel Magazine. “There was a movement by the Alliance of Automobile Manufacturers and the Minnesota Automobile Dealers Association (MADA),” Poster says. “They had some concerns about biodiesel, and they wanted to see the biodiesel mandate gutted—and I don’t think that’s too strong of a word. They were proposing some language that, in all but name, would remove our biodiesel standard. And the Department of Agriculture’s position is that biodiesel has worked really well in our state. It’s lowered the price of diesel fuel. It’s added to farmers’ incomes. It’s doing exactly what we want it to do. It’s been a great success.”

The article goes on to say that in order to appease opponents of biodiesel, the agency made four concessions: 1. Move the B20 date to 2018; 2. Shorten by one month the “summer” months part of the mandate, making it April-September; 3. Make permanent some exceptions for nuclear power plants, railroads, mining, logging and the Coast Guard; and 4. Extend the biodiesel blending waiver for No. 1 fuel to May 1, 2020.

Clean Energy Bill Hits House of Reps

Clean Energy Victory Bonds WillSeveral groups have been promoting clean energy victory bonds, a throwback from World War II. This week the concept gained support as the House of Representatives as the Clean Energy Victory Bonds Act of 2014. The Treasury bonds starting as low as $25 will allow Americans to invest in the country’s clean energy future.

The bill was introduced by U.S. Reps. Zoe Lofgren (D-Cali.) and Doris Matsui (D-Cali.) and includes 14 co-sponsors and is endorsed by Green America and the American Sustainable Business Council, which together represent half a million consumers, companies, organizations, and investors.

Todd Larsen, corporate responsibility division director for Green America, said, “This bond is modeled after the successful WW II Victory Bond which millions of Americans purchased. The Clean Energy Victory Bond will provide individual and institutional investors with the opportunity to invest in clean energy sectors such as solar, wind, second generation biofuels, electric vehicles, and residential and commercial energy efficiency programs. There are currently few investment opportunities for the average investor interested in supporting the shift to a clean energy economy so this bond fills a need for both investors and industry.”

Clean Energy Victory Bonds logoAccording to Green America and the American Sustainable Business Council, Clean Energy Victory Bonds will create the following major benefits:

  • Leverage $50 billion investment to provide up to $150 billion in public and private financing to fund the production of innovative energy technologies, at a time when the U.S. is falling behind other countries in clean energy manufacture and installation.
  • Help create at least one million competitively-paying jobs in the U.S.
  • Support America’s clean energy sector, helping to ensure that the U.S. remains a world leader in this increasingly crucial and competitive industry.
  • Reduce U.S. dependence on foreign sources of energy, enhance national security, and limit price increases and fluctuations.
  • Provide a secure, competitive, government-backed investment vehicle for average Americans and investment institutions alike seeking a safe place for their money.
  • Offer flexible redemption options at interest rates superior to most bank accounts.
  • Help all Americans to invest in the future of their country and benefit from their investments.
  • Promote a cleaner environment through the financing of clean energy technologies.
  • Protect the health and safety of Americans by reducing local air and water pollution throughout the country.

“From a business perspective, the Clean Energy Victory Bond makes great sense,” said Richard Eidlin, co-founder & policy director, American Sustainable Business Council. “The clean energy industry has not had the steady flow of financial support that investors and business need to plan effectively, resulting in investors often deciding to place their investments overseas rather than in the U.S.”

Tax incentives for renewable energy come and go, often without predictability, leaving investors and industry scrambling. The Clean Energy Victory Bond would extend vital tax credits for a decade, giving emerging industries the support they need to develop and become increasing competitive.

NASCAR Leader Testifies for Biofuels

The Senate Agriculture Committee held a hearing this week on advanced biofuels. Chairwoman Debbie Stabenow of Michigan says advanced biofuels are here now, and they are an important part of the energy title in the recently passed farm bill.

“The Energy Title funds critical programs that helps our farmers produce energy from non-food sources and helps companies get low-interest loans for those facilities, and of course, all that creates jobs,” Stabenow said, adding that to continue to grow the industry, there needs to be policies that support it. She said passing the Farm Bill was a strong first step toward to that goal. “Now we need to provide certainty through a strong Renewable Fuels Standard and tax credits to support long-term investments in our energy future.” Sen. Debbie Stabenow (D-MI), Senate Agriculture Committee

childress-testOne of the witnesses at the hearing was NASCAR team owner Richard Childress who talked about the many benefits of corn-based biofuels, such as the higher fuel performance he has seen in more than five million miles of racing since the E15 ethanol blend was introduced in the 2011 racing season.

“When they decided to go with an ethanol-blend of fuel, in 2010, NASCAR started looking at what was the correct blend to use. After many tests, they came up with E15,” Childress said, pointing out that his own racing team tested up to E30 blends, which he believes would be even better. “Nothing but positive results came out of our tests. Engines ran cooler, ethanol makes more octane so it makes more horsepower, less carbon buildup, better emissions, and our parts when we tore the engines down looked much better.” NASCAR team owner Richard Childress at biofuels hearing

Biodiesel Tax Incentive Moves Out of Committee

cap pic1A measure that would renew the federal $1-per-gallon biodiesel tax incentive has cleared a congressional committee. The credit, which expired at the end of 2013, passed the Senate Finance Committee as part of a package of tax provisions. The news was welcomed by the National Biodiesel Board, which still appeared miffed it expired in the first place, as Congress let happen in 2010 and 2012.

“This is the third time in five years that the biodiesel incentive has lapsed, making it incredibly difficult for biodiesel businesses to plan for expansion or build infrastructure,” said Anne Steckel, vice president of federal affairs at the National Biodiesel Board, the industry trade association. “We applaud the Senate Finance Committee for taking the first step toward extending it and urge the House and Senate to continue the committee’s bipartisan work by acting quickly to extend this credit so the biodiesel industry can get back to work.”

“The U.S. biodiesel industry has plants in almost every state in the country, and this tax incentive is something Congress can pass today to stimulate growth and economic activity at all of them,” Steckel added. “This incentive is a job creator, and it also pays tremendous dividends in terms of reducing harmful emissions and strengthening our energy security.”

The measure calls for the incentive to be restored retroactively back to Jan. 1, 2014, and extended through the end of 2015.

Hemp-to-Biofuels Research Gets Green Light

vote-hempA crop that has had an undeserved stigma attached to it could now become a source for biodiesel and ethanol. The recently passed and signed Farm Bill contains a provision that would allow hemp to be grown for research purposes, including making it into the green fuels.

“Hemp is a great crop for biodiesel, and we’ve already started experimenting with [cellulosic ethanol made from hemp],” explained Ben Droz with Vote Hemp, a group trying revitalize industrial hemp production in the U.S., at last week’s National Agriculture Day in Washington, D.C. He pointed out that hemp goes back a long ways in this country’s history, including being grown by the Founding Fathers and the founder of our modern automobile industry. “Henry Ford was actually doing research on hemp fuels and hemp biocomposites. And now today we are looking back to see if we can grow hemp once again.”

Ben said the Farm Bill defined industrial hemp, not to be confused with marijuana despite its similar appearance, as having 3/10 of a percent or less of THC – the active ingredient in the drug. Even if you smoked a hemp joint the size of a telephone pole, Ben said you still wouldn’t get high. But it’s only legal to do the research at universities and state ag departments in the 10 states where hemp is already legal to grow. He’s hoping that positive results in those locations will allow the effort to go nationwide.

“Those results will then encourage lawmakers to change the law so farmers can grow this profitable crop. There’s literally thousands of uses for hemp.”

Listen to all of Cindy’s conversation with Ben here: Interview with Ben Droz, Vote Hemp

2014 Ag Day Photo Album

ASA Applauds Biodiesel Tax Credit in Package

ASAlogo1Soybean growers are welcoming news of a couple of important measures moved forward in legislation for biodiesel. The American Soybean Association says a two-year extension of the dollar-per-gallon biodiesel tax incentive and a reinstatement of the pre-2014 expensing amounts for farm infrastructure and equipment under Section 179, both in the Senate Finance Committee Chairman’s Tax Extenders Package, are key issues for group’s members.

ASA First Vice President Wade Cowan, a farmer from Brownfield, Texas, issued the following statement on the committee’s proposal:

“The extension of the biodiesel tax credit is huge. Biodiesel blenders create a renewable and safe domestic energy source for our country and a valuable market for the soybean oil American farmers produce. The credit further encourages the development and sustained success of the biodiesel marketplace, and much credit goes to Chairman Wyden and Ranking Member Hatch and specifically Sens. Grassley and Cantwell for recognizing the importance of the biodiesel tax incentive and including it in their proposal…

“The proposal’s Section 179 reinstatement is also important. This enables farmers and other small business owners to expense investments made in new technology, equipment and infrastructure in their operations. Given the land-based and capital-intensive nature of farming, not to mention the ever-advancing technology we need to farm sustainably and competitively, this program helps us to stay on the cutting edge of our industry.”

Cowan also pointed out the biodiesel industry has been operating without the credit since the end of the fiscal year in September and called on the full committee to take up the measures quickly and move them on to the full Senate and House for final approval.

DF Cast: Lawmakers Listening to Ethanol Advocates

Ethanol backers got their voices heard during the recent American Coalition for Ethanol (ACE) Biofuels Beltway March in Washington, D.C. And at least some lawmakers were listening.

In this edition of the Domestic Fuel Cast, we talk to Rep. Rodney Davis (R-IL), Sen. Mike Johanns (R-NE), and Sen. John Thune (R-SD), who met with ACE and its supporters and all expressed their backing of efforts to keep renewable fuels, especially ethanol, in the forefront of federal policies.

Listen to what they had to say after they listened to ACE: Domestic Fuel Cast - Lawmakers Meet with Ethanol Advocates

You can also subscribe to the DomesticFuel Cast here.

2014 ACE Biofuels Beltway March photo album

Coverage is sponsored in part by Patriot Renewable Fuels

IBB Asks for Iowa Biodiesel Tax Credit Extension

IowaBiodieselBoardLogoWhile we’ve heard a lot about the federal $1-a-gallon biodiesel tax incentive, there’s some state credits that could help producers stay competitive. The Iowa Biodiesel Board has asked lawmakers in Des Moines to extend the .02 per gallon refundable credit for the first 25 million gallons of biodiesel produced in any single plant.

The incentive is set to expire at the end of calendar year 2014, but Senate File 2333 would extend the credit through 2019.

During the Iowa Biodiesel Board’s annual Biodiesel Day on the Hill event today, IBB said the state legislation is necessary to mitigate impact from potential changes to the federal Renewable Fuel Standard, provide some market certainty and keep Iowa competitive with surrounding states.

“Unless changes are made to current federal biodiesel policy, we will likely see significant nationwide consolidation of production capacity,” said Grant Kimberley, executive director of IBB. “The extension of the biodiesel producer incentive will encourage production to remain in Iowa, substantially benefiting Iowa’s economy and biofuels leadership position.”

The Iowans point out that their neighboring states have become more aggressive in their promotion of biodiesel, such as Missouri’s production incentive of $.30 per gallon on the first 15 million gallons produced and Illinois’ exemption from state sales tax on blends of biodiesel higher than 10 percent, and producers in the Hawkeye State need this incentive to stay competitive.

The bill to extend the credit passed out of the state Senate Ways and Means Committee earlier this week.

Biofuel Organizations Call for Tax Credits Extensions

US Capitol at dusk photo Joanna SchroederLeaders from several biofuel trade organizations are calling for the extension of some federal advanced biofuel tax credits. The Advanced Ethanol Council, Advanced Biofuels Association, Algae Biomass Organization, Biotechnology Industry Organization, Growth Energy, National Biodiesel Board, and Renewable Fuels Association have sent a letter to the Senate calling for the restoration of the Second Generation Biofuel Producer Tax Credit, the Special Depreciation Allowance for Second Generation Biofuel Plant Property, the Biodiesel and Renewable Diesel Fuels Credit, and the Alternative Fuel and Alternative Fuel Mixture Excise Tax Credit.

The letter reads, in part, “The advanced biofuels industry is at a critical stage of development. Despite a difficult financial market, we are now operating commercial plants across the country and continue to make progress on dozens of additional projects in the final stages of development. Advanced biofuel tax credits have allowed the biofuels industry to make great strides in reducing the cost of production and developing first-of-kind technologies to deploy the most innovative fuel in the world.

“As leaders in a critical innovation sector in the United States, we are well aware of the financial constraints facing this country. However, the United States’ global competitors are offering tax incentives for advanced biofuels and in fact are attracting construction of new facilities – and associated high skilled jobs. If Congress wants American companies to continue developing these homegrown technologies in the United States, it must extend these credits. Biofuel producers are also competing with incumbent fossil energy industries who continue to enjoy tax incentives on a permanent basis.”

The letter marks the latest effort by biodiesel and ethanol producers and their backers to get better federal government support for their green fuels. Late last year, the Environmental Protection Agency undercut the industries when it proposed drastic reductions in the amount of biodiesel and ethanol to be mixed into the Nation’s fuel supply. In addition, Washington also let these vital federal tax credits expire at the end of the year.

An Energy Enthusiast Version of March Madness

March Madness is upon us. For those not living in the United States, it’s the two weeks where college men and women’s basketball teams battle it out on the court until the last team is standing and crowned champion. Now that the NCAA teams have been announced and the brackets determined, people are filling out their official tournament forms with hopes of also being the last one standing (this assures bragging rights for one year).

This year, the Americans United for Change has released its own version of March Madness: the 1st Annual Environment Protection Agency (EPA) Renewable Fuel Standard Elimination Tournament. Jeremy Funk, communications director, notes that there is only one possible upset in this tournament and its a long shot and that is the renewable energy industry coming out the victor. He says “everyone knows the fix is in at this tournament if the EPA ejects the RFS and guarantees victory for 1st seed team Big Oil over the 16th seed team, The American Consumers”.

tumblr_n2n687cBjP1ts83mmo1_1280The EPA is currently reviewing more than 100,000 comments submitted in response to its 2014 proposed Renewable Fuel Standard (RFS) – an energy policy designed to reduce the use of imported oil while also reducing greenhouse gas emissions.

“Big Oil has been working the refs in Washington for decades, complaining they need billions of dollars in taxpayer subsidies, even when they’ve got $100 billion in profits on the scoreboard,” added Funk. “Now the oil industry has a full court press on Washington to once again rewrite the rules in their favor by ejecting the cleaner, cheaper renewable fuels competition from the game. Without a strong Renewable Fuel Standard promoting healthy competition, Big Oil would be free to give consumers the Bobby Knight treatment at the pump.”

He says he is confident that when the EPA’s referees review this call, they’ll see the RFS has been an incredible Cinderella Story for rural communities when it comes to creating jobs, income and opportunity.

Funk concluded, “They’ll see the RFS has meant our troops have has been playing stronger D by reducing our dependence on oil from unstable regions overseas. They’d see the RFS has been a slam dunk for innovations in cleaner burning, next generation renewable fuels to combat climate change. We’re confident in the end, the EPA will reverse this terrible call and make Big Oil play fair for a change.”

Minnesota Biodiesel Mandate Survives Delay Attempt

mnstatelegis1A bill that would have delayed implementation of a 10 percent biodiesel mandate in Minnesota diesel fuels was stopped in a state legislative committee. This story from WDAZ-TV says the bill from Sen. Melisa Franzen, D-Edina, was defeated overwhelmingly in the state Senate Commerce Committee.

She said most cars and light trucks are built to handle 5 percent biodiesel, which now is required to be sold in Minnesota, not the planned 10 percent, known as B10.

Biodiesel supporters said they have heard this argument before, reaching back years to when ethanol first was required to be blended with gasoline. Problems have been few and far between once the state mandated that gasoline and diesel contain plant-based fuel, they said.

Jerry Schoenfeld, who represents soybean farmers and the Minnesota Biodiesel Council, said those who support Franzen’s bill sit on a biodiesel task force but never brought up their complaints until the bill surfaced recently.

Both sides used Illinois as an example to support their cause. Those wanting a B10 delay pointed to fuel-blamed engine problems such as clogged filters and acceleration hesitation. Biodiesel supporters said that even in Illinois, Mercedes-Benz praised biodiesel and urged owners to monitor oil levels and strictly follow oil change intervals, but few problems have been reported.

A 2008 law in Minnesota upped the current 5 percent blend to 10 percent when state officials believe there is enough biodiesel to meet that demand, and they had decided that will come on July 1st.

Ill Winds Blow for Energy Production Tax Credit

single wind turbine Photo Joanna SchroederThings could be looking bleak for a federal tax credit that helps wind power projects. This article from Bloomberg Businessweek says the production tax credit is facing a bumpy ride as Congressional Republicans look for a bigger tax break overhaul.

“Maybe there will be some in the Senate who will try to revive it but I really do think it’s dead in the House,” said [Representative Charles] Boustany, a Louisiana Republican and member of the House Ways and Means Committee, said in an interview today in New York. While the credit might be revived as part of lame-duck legislation after the November elections, that seems unlikely, he said.

The 2.3-cent per kilowatt-hour production tax credit, which pays owners for power produced during a project’s first decade, expired at the end of last year. A broader tax reform proposal released last month by Representative Dave Camp, chairman of Ways and Means, would reduce the amount project owners can claim to 1.5 cents, boosting government revenue by an estimated $9.6 billion.

President Obama has proposed a permanent extension and expansion of the production credit at a cost of $19.3 billion over the next decade. His efforts might be boosted by Oregon Democratic Senator Ron Wyden, who is planning a vote on restoring the measures in the next few months.

Meanwhile, officials with the American Wind Energy Association promise to stay engaged in tax-reform discussions.

IRFA: Obama Misses Chance to Help Biodiesel

IowaRFAlogoAs President Obama unveiled his FY 2015 Budget Proposal, the Iowa Renewable Fuels Association (IRFA) says he missed his chance to level the playing field for biodiesel. IRFA Policy Director Grant Menke points out that while the President included the reinstatements of several currently expired tax provisions, such as tax credits for cellulosic biofuel and wind energy production, he seemed to forget about the federal $1-a-gallon biodiesel tax credit, which expired at the end of 2013.

“While we are pleased the President seeks to reinstate the cellulosic biofuel tax credit and several other important tax incentives, we are disappointed he did not include the biodiesel tax credit among these extensions. As America’s leading advanced biofuel, biodiesel has made great strides in production, distribution, and use. However, faced with the enduring effects of the petroleum industry’s continuous Century of Subsidies, reinstating the biodiesel tax incentive is a vital part of leveling the energy playing field and allowing true consumer fuel choice.”

IRFA points out that the Hawkeye State is a leader in renewable fuels production, with 42 ethanol refineries capable of producing over 3.8 billion gallons annually, three cellulosic ethanol facilities currently under construction, and a dozen biodiesel facilities able to produce nearly 315 million gallons each year.

Camp Releases 2014 Tax Reform Draft

Ways and Means Committee Chairman Dave Camp (R-MI) has released draft of the “Tax Reform Act of 2014,” which he says will spur stronger economic growth, greater job creation and put more money in the pockets of taxpaying Americans. Camp’s goal is to fix America’s broken tax code by lowering tax rates and making tax policy simpler and fairer for families.

Based on analysis by the independent, non-partisan Joint Committee on Taxation (JCT), without increasing the budget deficit, the Tax Reform Act of 2014:

  • Create up to 1.8 million new private sector jobs.
  • Allow roughly 95 percent of filers to get the lowest possible tax rate by simply claiming the standard deduction (no more need to itemize and track receipts).
  • Strengthen the economy and increases Gross Domestic Product (GDP) by up to $3.4 trillion (the equivalent of 20 percent of today’s economy).

organization of the ways and means committeeUsing data provided by JCT, Camp says the average middle-class family of four could have an extra $1,300 per year in its pocket from the combination of lower tax rates in the plan and higher wages due to a stronger economy.

“It is no secret that Americans are struggling. Far too many families haven’t seen a pay raise in years. Many have lost hope and stopped looking for a job. And too many kids coming out of college are buried under a mountain of debt and have few prospects for a good-paying career,” said Camp about the need to fix America’s broken tax code. “We’ve already lost a decade, and before we lose a generation, Washington needs to wake up to this reality and start offering concrete solutions and debating real policies that strengthen the economy and help hardworking taxpayers. Tax reform is one way we can do that.”

The tax code would also affect energy companies including those who are developing and providing renewable energy. In response to the draft proposal, Brooke Coleman, Executive Director of the Advanced Ethanol Council (AEC), said, “While the draft plan falls well short of the goal of ensuring that the multi-trillion dollar global clean energy sector sets up shop in the United States, Chairman Camp should be commended for taking tough positions on many of the most distortive oil and gas subsidies in the federal tax code.”

“Inequitable provisions like percentage depletion, last-in/first-out (LIFO) and various incentives for the production of marginal oil and gas distort investment decision-making and drive capital away from renewable fuels,” continued Coleman. “Chairman Camp is right to point out that only extractive industries are allowed to recover more than their investment under current percentage depletion and depreciation rules. Doing away with these provisions will do little to dissuade oil and gas investment given the magnitude of the opportunity, but will help level the playing field when it comes to investments in next generation fuels of all types.”

Coleman concluded that while AEC is not supportive of the proposal’s treatment of the emerging cellulosic and advanced ethanol industry, they are looking to working with the Committee to ensure the U.S. is in the best position to develop  new technologies and commercials clean energy on American soil.