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U.S. biodiesel industry struggles without subsidy

Sector 'hanging by its fingernails'

(Natt Boonyatecha/iStock/Getty Images)

New York | Reuters — When John Whittington shut his Indiana biodiesel plant this week, he knew the move would leave all 14 of his workers there looking for jobs heading into the U.S. holiday season. But he felt he had no choice.

A $1-per-gallon subsidy that had been propping up the industry since 2005 lapsed at the beginning of 2018 due to Congressional inaction, and his hopes for a swift renewal had been declining along with his business ever since (all figures US$).

“I didn’t (lay off my workers) because they failed,” said Whittington, co-owner of Integrity Biofuels at Morristown, about 30 km east of Indianapolis. “To me, the support systems of the industry have failed.”

Integrity Biofuels’ shutdown marks the tenth biodiesel facility to have idled this year after the lapse in the biodiesel credit, putting about 250 people out of work, according to the National Biodiesel Board (NBB). Nationwide production has decreased about 10% year-on-year, according to Energy Information Administration data.

The biodiesel credit was part of a broad legislative effort more than a decade ago to help farmers and reduce petroleum imports by supporting biofuels. At a cost of nearly $2 billion per year, it is among the most expensive U.S. energy subsidy programs.

Its lapse has added pressure on Midwest farmers, a key constituency in the 2020 presidential election already struggling under poor planting conditions and the fallout from the U.S.-China trade war.

In August, some 90 U.S. facilities produced 156 million gallons of the fuel — made from agricultural oils, recycled cooking oil and animal fats — from 172 million gallons a year earlier, according to the U.S. Energy Information Administration. Other plants that have cut production include facilities run by players such as Flint Hills Resources, World Energy and REG.

In recent weeks, industry associations, biodiesel producers and lawmakers seeking to prevent further shutdowns and layoffs have packed pressure on Congressional leadership to renew the so-called Biodiesel Blenders Tax Credit for buyers of the fuel.

On Thursday about 140 companies and organizations sent a letter to House and Senate leadership, urging them to extend the credit before the end of the year.

“Producers are now cutting back production, purchases of raw materials, and deliveries of renewable fuel to consumers, which will have impacts across the economy,” the letter said.

The industry’s advocates want the biodiesel credit to be included in a government funding package to be passed before the end of the year. Whether the credit is included is up to House and Senate lawmakers negotiating it, a House Democratic aide said. In the past Congress has retroactively renewed it with sweeping bipartisan support.

But this lapse has been longer than ever. The government shutdown late last year diverted Congress’ attention from addressing the issue, said Paul Winters, a spokesman for the NBB industry group. Biodiesel groups argue this has thrown confusion into future supply contracts and tightened credit lines.

“A lot of companies have been hanging on by their fingernails,” Winters said.

Republican Senator Chuck Grassley of Iowa, a biodiesel advocate who serves as chairman of the Senate Finance Committee, said the renewal has been complicated by a general decrease in bipartisanship in legislative negotiations.

Industry players worry Congressional impeachment proceedings against President Donald Trump will further reduce the chances of a renewal.

“A lot of us are fearful,” said Michael McAdams, president of the Advanced Biofuels Association.

— Stephanie Kelly reports on the U.S. oil and fuel sectors for Reuters from New York.

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