U.S. House Passes Legislation Extending $1-a-Gallon Biodiesel Tax Credit

A $1-a-gallon biodiesel tax credit that expired Dec. 31 would be extended under legislation that passed the U.S. House of Representatives today.

The proposal, which also continues unemployment insurance and restores other tax breaks, would keep the biodiesel credit in place until the end of this year. The legislation must be approved by the U.S. Senate before it can be signed into law by President Barack Obama.

“Obviously, this is a win for the industry,” said Michael Frohlich, a spokesman for the National Biodiesel Board, the industry’s primary trade group. “Each step that brings us closer to having the biodiesel tax credit reinstated is a win.”

Biodiesel production has almost stopped since the tax credit expired, according to the National Biodiesel Board. There are 173 biodiesel plants in the U.S. with an annual capacity of 2.7 billion gallons.

The credit for blending biodiesel into conventional fuel makes it cost-competitive to do so. Biodiesel, which is made from vegetable oils or waste grease, costs about $2.90 a gallon in the Midwest, according to data compiled by Bloomberg. Diesel in Chicago is at $2.017 a gallon.

Refiners must use 1.15 billion gallons of biodiesel this year, under the so-called renewable fuels standard mandate.

“Obligated parties are sitting on the sidelines saying, ‘why buy high when I can buy low’ when the tax credit is reinstated,” Frohlich said. “Most folks are idle just trying to ride this storm out.”

Senator Charles Grassley, an Iowa Republican, said today that the Senate won’t vote on the biodiesel package until after the Memorial Day recess.

To contact the reporter on this story: Simon Lomax in Washington at slomax@bloomberg.net; Mario Parker in Chicago at mparker22@bloomberg.net

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