Biodiesel Bonanza

ReportBiodiesel BonanzaHow federal subsidies prop up the biodiesel industry and cost taxpayers billions

Energy & Natural Resources,  | Analysis
Apr 24, 2019  | 3 min read | Print Article

The complete report is best viewed here, in PDF format

The federal government has subsidized the mature U.S. biodiesel industry for more than a decade. In years when subsidies are larger and more predictable, the industry responds with higher production levels to take advantage of billions of dollars in federal tax credits and other incentives. The largest subsidy – the now $3-billion-per-year biodiesel tax credit – was created as a temporary measure in the American Jobs Creation Act of 2004 but has been subsequently extended seven times, most recently through the end of 2017.1 Congress is currently considering proposals to extend the credit yet again. The industry’s other main support is an annual biofuels mandate known as the Renewable Fuel Standard (RFS) that was established in 2005 and expanded in 2007. These and other subsidies discussed below distort markets and prop up
biodiesel production at the expense of consumers, the environment, various industries that use biodiesel feedstocks, and taxpayers.

Overview

Biodiesel is derived from animal fats, used cooking oil, and vegetable oils derived from crops such as soybeans, corn, palm, and canola. More than half of U.S. biodiesel is derived from soybeans. Like its sister fuel corn ethanol, biodiesel was expected to one day stand on its own two feet without taxpayer subsidies, market interventions, and government mandates. Unfortunately for taxpayers, biodiesel subsidies continue to hold on through an array of federal programs scattered across numerous government agencies. The government subsidizes biodiesel at nearly every point throughout its supply chain:

  • Feedstock production: Farm Bill subsidies for the production of corn, soybeans, and other biodiesel feedstocks.
  • Production: Primarily the $1-per-gallon Volumetric Biodiesel Excise Tax Credit, but also subsidies for annual biodiesel production through the Farm Bill energy title’s Bioenergy Program for Advanced Biofuels.
  • Education and market promotion: Biodiesel education via the Farm Bill’s Biodiesel Fuel Education Program.
  • Consumption mandate: The federal RFS requires a certain level of biodiesel be blended into the U.S. diesel supply each year.
  • Infrastructure subsidies: The Alternative Fuel Vehicle Refueling Property Credit subsidizes new fueling infrastructure for mixtures of biodiesel and regular diesel.

The array of biodiesel subsidies has resulted in some working at cross-purposes with not only one another, but also other federal programs aimed at curbing air pollution, cleaning up fertilizer runoff from farming operations, etc. Biodiesel subsidies have allowed the federal government to pick winners and losers, distort energy and agriculture markets, and contribute to the expansion and overproduction of biodiesel, all at great cost to taxpayers.

 

The complete report is best viewed here, in PDF format

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