Tuesday, November 29, 2011

Biodiesel Rollercoaster

Biodiesel production boomed in 2011, most probably thanks to the return of federal tax incentives at the beginning of the year that led to more favorable economic terms for producers.  The National Biodiesel Board (NBB) reports that the industry is poised to produce more than 802 million gallons of biodiesel in 2011, more twice 2010 production of 315 million gallons.   Production in 2011 also breaks the previous record of about 690 million gallons set in 2009, the last year the tax incentives had been in place before Congress in its infinite wisdom allowed the incentives to expire. 

The tax incentives are not without economic consequences beyond the industry.  According to environmental consulting firm, Cardno- ENTRIX, increased production in 2011 is supporting more than 31,000 jobs.  This compares to fewer than 13,000 in 2011.  The increased production is also expected to generate at least $3 billion in GDP and $628 million in federal, state and local tax revenues. 

For many smaller biodiesel producers the on-off relationship Congress appears to have in renewable fuels has been a death knell.  Investors with both profit and social reasons to put capital into biodiesel are not much better off.  Of course, the dramatic decline in valuation for renewable fuels producers over the last year is a mix of concerns about systematic risk as much as future revenue and profits. 

Nonetheless, it is well understood that investors dislike uncertainty.  Federal tax incentives for biodiesel are again set to expire at the end of 2011.  Would it be too much to ask Congress for a cohesive long-term energy policy that would give both producers and investors something to count on? 

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