Biodiesel industry primed to flourish

Boom times are ahead for a biodiesel industry that struggled just to stay alive in 2010.

The industry could produce as much as a billion gallons in 2011, nearly triple this year’s production, said Gary Haer, chairman of the National Biodiesel Board.
Congress this month revived a critical $1-a-gallon tax subsidy that had lapsed at the end of 2009, and the industry also will benefit in 2011 from increased federal mandates on refiners to use biodiesel.
There is a specific mandate for use of 800 million gallons of biodiesel next year, plus biodiesel also can qualify toward an additional requirement for refiners to use what are termed advanced biofuels. Sugarcane ethanol from Brazil also will qualify as an advanced biofuel because of its low greenhouse gas emissions in comparison to U.S. corn ethanol.
“Certainly, we’re very optimistic about 2011,” said Haer, who is vice president of sales and marketing for Renewable Energy Group of Ames, a top biodiesel producer.
Increasing biodiesel production past 800 million gallons in 2011 will mean beating out Brazilian ethanol, and that will be tough to do given the relatively high price of soybean oil and the limited supplies of alternative feedstocks, said Bruce Babcock, an Iowa State University economist.
It takes nearly eight pounds of soybean oil to make a gallon of biodiesel, and soybean oil costs about 50 cents a pound or more.
Iowa’s biodiesel industry has capacity to produce 322 million gallons a year, but few plants have been operating, according to the Iowa Renewable Fuels Association.
Renewable Energy Group, which used the industry downturn to acquire additional plants, has benefited from having two facilities in Illinois to fill demand created by an unusual state tax exemption there.
Several Renewable Energy facilities also have the advantage of being equipped to make biodiesel from a variety of different feedstocks, including waste fats from slaughterhouses, rather than pricier soybean oil.
Renewable Energy employs 173 people and expects to increase its staff as production increases.
The company can produce about 182 million gallons from its five plants, which include facilities at Newton and Ralston. Three plants that are under construction would push the company’s annual production capacity to 315 million gallons.
Even as the industry gears up in 2011, producers also will watch Congress. The $1-a-gallon tax credit is in effect only through next year. The industry wants a five-year extension beyond 2011, a tall order given the growing concern about the federal budget deficit.
“We still don’t have that certainty long term in the marketplace that we’re looking for,” Haer said.
The ethanol industry is in a similar situation because its 45-cent-per-gallon tax credit also is due to expire at the end of 2011.