California biodiesel companies hunker down — and hope

Jennifer Case, president of San Diego-based New Leaf Biofuel, is feeling a bit tense these days.

Her 31-employee company, which recycles cooking oil and converts it to diesel fuel, is about to enter the new year without a much-needed federal tax credit, which is in limbo on Capitol Hill.

“You have to reduce your expectations and prospects,” Case said. “So you stop investing and you stop hiring and you pinch pennies. Those are the things we’re going to do to get through this.”

The $1-a-gallon tax credit for biodiesel and biofuels expires on Dec. 31. As recently as last month, the industry was counting on the credit getting extended in Congress as lawmakers finalize a budget as part of a continuing resolution.

But the budget deal was wrapped up this week, with an extension approved until April 28, and the biodiesel/biofuel credit was nowhere in sight.

It was dropped by legislative leaders who preferred to pass a continuing resolution without attached conditions providing money for tax extenders or programs like the controversial Export-Import Bank. Those issues were pushed down the road for a new administration and Congress to tackle.

Biofuel producers have been in this situation before. The tax credit has lapsed four times in the past but each time Congress renewed it within a few months, with provisions enforced retroactively.

“All along this year, we thought it was going to happen so we do our best to cover our bases,” Case said. “But what would cripple us is if they don’t retroactively extend it.”

Biodiesel is part of the federal government’s Renewable Fuel Standard, established in 2005 to promote energy independence and cut down on greenhouse gas emissions.

Tax credits for biodiesel are distinct from the price supports for ethanol, the biofuel that is blended into the nation’s gasoline supply and often a target of intense debate among policymakers.

With a new Trump administration coming into the White House, Case is concerned the Renewable Fuel Standard in general and the biodiesel tax credit in particular may end up on the chopping block.

President-elect Donald Trump has nominated Oklahoma Atty. Gen. Scott Pruitt as administrator of the Environmental Protection Agency, which enforces the Renewable Fuel Standard.

A critic of what he calls “an activist agenda” of the EPA under the Obama administration, Pruitt has been a skeptic about the degree humans are responsible for affecting the climate.

“I think [California biodiesel producers are] all waiting with bated breath, hoping beyond hope that we’re wrong about what Trump is going to do,” Case said.

The national trade group for the industry is taking a more optimistic view.

“The benefits of the RFS isn’t a partisan issue,” said Anne Steckel, the Washington-based vice president of federal affairs for the National Biodiesel Board. “Whether it’s a Republican or a Democrat in the White House, we still have strong points to make and how the RFS benefits the country. So we feel confident we’ll have a good working relationship with the Trump administration.”

While campaigning in Iowa in January, Trump said in a prepared statement he was opposed to Congress “changing any part of the RFS.”

As for Pruitt’s nomination, Steckel pointed out that while the EPA oversees the Renewable Fuel Standard, “Congress is the one that decides whether the tax incentives are going to be extended or not.”

The Renewable Fuel Standard has some powerful allies on Capitol Hill, especially among members in farming states.

Sen. Charles Grassley (R-Iowa), the chairman of the Senate Judiciary Committee, co-sponsored a bill earlier this year to extend the biodiesel tax credit and reform it in order to protect domestic producers.

Tax credits have been targeted by libertarians and free-market think tanks contending that subsidies distort economies and lead to unintended consequences.

“What we’re doing with these tax credits is effectively trying to shift the cost on taxpayers or somebody else,” said Wayne Winegarden, senior fellow at the San Francisco-based Pacific Research Institute.

Regardless what happens on the federal level, the biodiesel industry gets support from the state of California.

Biodiesel is part of the California’s Low Carbon Fuel Standard, which assigns credits that can be sold to refineries to meet their obligations under the program. That program is administered by the California Air Resources Board.

Case’s business is one of nine plants in California that helped account for 33 million gallons of in-state production of biomass-based diesel last year.

“California feels like an island right now,” Case said. “I believe there are a good number of people in my industry [who are] promoting biodiesel because farming needs the extra income and it’s a domestic fuel.

“But they didn’t get into this business for the reason I did,” she said. “I got into this business for that hokey, ‘I want to save the planet’ deal and most Californians are like that.”

rob.nikolewski@sduniontribune.com

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