Senate May Drop Key Tax Credit For Biodiesel Industry

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(Washington, DC - Todd Zwillich, Transportation Nation)  The nation's truckers aren’t likely to start pumping biodiesel any time soon, by the looks of the United States Senate.  That’s because the resurrection of a big biodiesel tax credit is poised to fall victim to a larger tax and jobs bill, which failed tonight on the Senate floor.

The credit is worth $868 million over ten years to refiners who blend biofuel from soybeans, animal fats, restaurant waste oil and other sources into traditional, petroleum-based diesel.  Refiners get a one-dollar tax credit for every gallon they blend, and the savings generally go to making biodiesel more competitive with standard diesel at the pump.

Congress has extended the credit for the last few years, and it still enjoys strong support from both parties. But partisan disagreement over a broader package of tax provisions and unemployment benefits ended the credit.  At least for the time being.

Since the credit expired on December 31, 2009, “what we’ve seen is a complete and total drop in demand, which has led to minimal production (of biodiesel), at best right, now,” says Michael Frohlich, spokesman for the National Biodiesel Board. He said up to 50 of the 173 blending plants across the nation have been idled by the stalled credit.

Biodiesel is used mainly in 18-wheel trucks, heavy duty trucks, farm equipment and heavy machinery. An estimated 250 million gallons were pumped in 2007, though that’s still only about 1% of total U.S. diesel consumption.

The fuel is attractive because it produces fewer greenhouse gas emissions than traditional diesel. However environmental groups, including the Union of Concerned Scientists, warn the reduction does not take land use into account, which drives biodiesel’s total carbon footprint higher.

The credit is popular with farm state Democrats and Republicans who see it as an important outlet for soybeans and other crops. But Senate Republicans are withholding support for the broader bill over concerns about spending.

Over the last few days, Sen. Charles Grassley (R-IA) made several attempts to carve out the biodiesel credit extension and pass it on its own. Those efforts were rebuffed by Senate Majority Leader Harry Reid (D-NV), who was trying to find as many carrots as possible to entice Republicans to support the broader bill.

Frohlich said lawmakers assured biodiesel industry representatives last week that they’re still firmly behind the credit. “The message was, 'we’ll work with you and try and make sure it gets put back into place,'” he said.