By Brett Clanton
Late Thursday night, as most prepared to ring in the new year, Renewable Biofuels was joylessly preparing to halt production at its giant biodiesel fuel plant in Port Neches, just a year after it opened.
The Houston-based firm said the decision became unavoidable after Congress failed to renew a tax credit of $1 per gallon for the alternative fuel on Dec. 31.
In place since 2004, the credit gave a dollar to refiners for every gallon of biodiesel they blended into petroleum diesel. Without it, output at biodiesel plants nationwide is grinding to a halt.
“The vast, if not all, of our contracted parties have essentially said please put ours on hold,” said Jonathan Phillips, chief investment officer at Renewable Biofuels, whose 180 million-gallon-per-year Port Neches plant is being idled but could resume operation if the incentive returns.
The entire biodiesel industry is in a similar holding pattern, though it's unclear how many companies idled plants Thursday. Producers still hope the credit will be renewed and applied retroactively when Congress reconvenes later this month.
But even a temporary loss of the credit could be enough to ruin some companies, many of them already weakened by a string of recent economic and policy setbacks.
“As a result of the tax credit lapse, we expect that industry-wide pay will be cut, jobs will be lost and infrastructure and plant investments will waste away,” said Daniel J. Oh, president of Ames, Iowa-based Renewable Energy Group, one of the nation's largest biodiesel producers.
All of the company's nine plants — including one in Seabrook on Galveston Bay — “are expected to be negatively affected” by the loss of the credit, he said in an e-mailed statement without elaborating.
With the incentive suspended, the biodiesel industry could lose another 23,000 jobs after shedding 29,000 jobs in 2009, estimates the National Biodiesel Board.
“I know of a number of companies that haven't made announcements yet, but they are planning for layoffs,” said Michael C. Frohlich, spokesman for the Jefferson City, Mo.-based industry group said.
Laying off workers
In Texas, the largest biodiesel producing state — the industry provided 8,600 jobs last year across more than 30 plants, including several in Houston — the impact could be especially bad.
Renewable Fuels, for example, had already eliminated 25 to 30 employees between its Port Neches plant and corporate office amid tough market conditions in 2009, and now is weighing further cuts, Phillips said.
Other producers in the state, including Grapevine-based GreenHunter Energy, which put its 110 million gallon plant at the Houston Ship Channel up for sale earlier this year, have also idled plants and laid off workers.
That's why U.S. Rep. Gene Green, D-Houston, and other Texas lawmakers say they will push to have the incentive reinstated as soon as possible.
“I'm hoping that after Congress gets back in session, we can extend that tax credit very quickly,” Green said, explaining health care reform and other issues “took greater priority” in the final days of the 2009 session.
EPA hasn't approved rules
Biodiesel is a cleaner-burning substitute to petroleum diesel. In the U.S., it is typically made from vegetable oils and animal fats.
To stoke demand, the U.S. government in 2004 approved the $1-per-gallon tax credit for companies that blend biodiesel at low levels with petroleum diesel, spurring a building boom of plants.
Today, American biodiesel plants have the capacity to produce about 2.7 billion gallons a year of the fuel, yet as of December, only 15 percent of that capacity was in use, the National Biodiesel Board said.
Energy legislation passed in 2007 was supposed to require the blending of 500 million gallons of biodiesel into the nation's fuel supply in 2009, doubling to 1 billion by 2012. But the Environmental Protection Agency still hasn't approved rules to put the requirement into practice, leaving producers without a domestic market.
In addition, new European trade barriers are blocking U.S. biodiesel exports to Europe, which had been a major source of business for many producers. And the cost of raw materials like soybean oil have risen.
“When you take all those combined, it makes for one tough sandwich to swallow,” Frohlich said.
Large and well-capitalized biodiesel producers have been able to survive thus far, even as smaller players have had to exit the market. But a prolonged delay in renewing the credit could be devastating for the whole industry.
Even big firms are feeling pressure from lenders and investors to start turning things around, Phillips said.
“There's only so much bad news they can take,” he said.