The huge news at press time is the signing into law of the big $850-plus billion tax bill that included the retroactive reinstatement of the biodiesel and renewable diesel blender credits, as well as the extension of the volumetric ethanol excise tax credit; not to mention extension of the investment tax credit, section 1603, and the alternative fuels mixture credit.
For those who have been living under a rock for the past year, the biodiesel and renewable diesel tax credits expired at the end of 2009 and went through brutal ups and downs throughout the past year in anticipation of renewal. The lapse had devastating effects on the U.S. biodiesel industry, and, less quantifiably so, may have also depressed domestic renewable diesel project development.
Earlier this year, the U.S. ethanol industry began to question whether its credit would suffer the same fate as the renewable and biodiesel credits did, and all of the hardship that came with it. Interestingly, the biodiesel industry, which has been proudly displaying its designation as the first commercially available advanced biofuel in America (per U.S. EPA’s calculation of lifecycle reduction of greenhouse gas emissions compared to baseline petroleum diesel), began to adapt to a world without a tax credit—one can argue that the biodiesel industry has been forever changed as a result of its experiences in 2010—as biomass-based diesel renewable identification number (RIN) prices soared in recent weeks to 80-plus cents a credit. With each gallon of biomass-based diesel producing 1.5 RINs, this comes out to $1.20 per gallon, a fifth more than the $1 per gallon tax credit.
Producers registered under EPA’s RFS2 program were taking advantage of this, and plants were beginning to manufacture fuel again. The downside to RINs, however, is the once-a-year reporting period, causing volatility in the RIN market place: prices spike as obligated parties scramble to meet their obligations by the end of the year, after which prices can dip dramatically.
The retroactive nature of the biodiesel and renewable diesel tax credits will provide a cash injection to the industry, specifically for those who held on to the hope that the credit would come back and continued blending biodiesel, and the surety of the credit through 2011 will surely be positive. But the trade associations, such as the Advanced Biofuels Association and the National Biodiesel Board, will have their work cut out for them in 2011 as they push for multiyear extensions to bring investor confidence back into their respective sectors.