Industry, Economic and Environmental Impacts of Extending the Biodiesel Blending Tax Credit
This study considers the impact to the agricultural value chain, biodiesel industry, and larger U.S. economy if the biodiesel blenders tax credit (“BTC”) were immediately reinstated. It also considers the greenhouse gas reductions that would result.
FTI Consulting forecasted that up to 644 million gallons of additional biodiesel could be produced by 2024 if the BTC were extended. Under this best-case scenario, the following socioeconomic benefits would occur over the next five years:
- Additional farm revenues of $10 billion from increased demand and crop prices;
5.0 percent increase in soybean prices
2.2 percent increase in corn prices
- Additional grain and oil seed processing revenues of $5 billion;
- 31,400 new jobs on average supported throughout the U.S. economy; and, additional paid wages and benefits of $1.8 billion per year;
- Additional economic output (economy-wide sales) of $37.9 billion across the economy, which translates to U.S. GDP of $15 billion;
- Additional Federal tax and state and local tax contributions of $1.4 billion; and
- A cumulative reduction in GHG emissions of 18.4 million tons, which is equivalent to taking 800,000 cars off U.S. roads, on average.
In addition to these benefits, biodiesel can help the U.S. decrease its reliance on foreign oil.
With the BTC expired since January 1, 2017, cracks in the biodiesel industry are starting to emerge as hope fades for its renewal. In 2019, five producers have publicly announced the closure or idling of 330 million gallons of annual production capacity. With the average facility losing approximately 25 cents per gallon of production prior to interest, taxes, depreciation, and amortization, current production levels are not sustainable, and further growth untenable, without the BTC.
An extension of the BTC could act as an insurance policy against the negative effects of trade war and foreign biodiesel imports. A pragmatic approach to stabilizing the industry would be to immediately and retroactively re-instate the BTC and allow it to decline over time, giving the biodiesel fleet enough headroom to transform into a set of producers better situated to face an uncertain market ahead.