Bad year for biofuels

2010-01-02 10:11

Oklahoma City - An alternative fuel for diesel engines is off to a shaky start this year, even though it emits fewer pollutants and cuts down on petroleum use because it's made from environmentally friendly waste and vegetable oil.

A federal tax credit that provided makers of biodiesel $1 for every gallon expired on Friday. As a result, some US producers say they will shut down without the government subsidy.

Biodiesel's woes come on top of a year of problems for the fledgling biofuel industry - an irony given the push to cut down on greenhouse gases and ease the nation's need for foreign oil. A key driver for the alternative fuel - the high cost of oil - disappeared as diesel prices dropped 18% since the beginning of the recession. Then in March, the European Union placed import-killing tariffs on biodiesel and other biofuels.

It was a huge hit for US biofuel makers, with Europe taking 95% of all global exports.

Fleet vehicles

Biodiesel, which is usually blended with traditional fuel, had over the past few years been the fastest growing fuel among fleet vehicles like buses, snow ploughs and garbage trucks.

Those fleets, however, can shift to traditional fuel, as some have, when the price of diesel drops.

The biodiesel industry is now operating at only 15% of its potential capacity, according to the National Biodiesel Board, largely because the price of traditional diesel has collapsed. There are close to 180 biodiesel plants operating in about 40 states.

The country's largest biodiesel refinery, in Houston, sits idle. Another major refinery in Hoquiam, Washington, that was restarted recently to meet alternative fuel mandates in Oregon and British Columbia was shut down after an explosion in December.

Tax credit

The loss of the tax credit, which helps pay salaries, buy new equipment and in good times to turn a profit, will hit small producers particularly hard.

A one-year extension of the biodiesel tax credit was included in a bill that was approved by the US House recently, but it never made it through the Senate.

Lawmakers say the tax-credit will be retroactive if approved.

Production will cease in Valliant, Oklahoma, where Dwight Francis created a biodiesel start-up this year as the local timber economy tanked.

For each of the 12 000 gallons (45 424 litres) of biodiesel that Francis produces each week, he has received a $1 tax credit to help keep operations going.

His company has been riding out the economic downturn until now, thanks to the tax credit.

"By the time you buy the feedstock and the chemicals to produce the fuel, you have more money in it than you get for the fuel without the tax credit," Francis said. "We won't be producing any without the tax credit."

- AP