Study finds benefits of biodiesel tax credit

WASHINGTON — Allowing the current biodiesel tax credit to expire at the end of 2022 would harm the U.S. economy and environment, according to a new report.

“A significant body of research also demonstrates that the biodiesel tax credit easily passes a cost-benefit analysis and that the environmental benefits alone from each gallon of biodiesel that replaces petrodiesel exceed $2 a gallon, or more than double the cost of the credit,” the study conducted by Capital Policy Analytics states.

Capital Policy Analytics is a consultancy that provides economic analysis to businesses both in the United States and abroad regarding how government policies affect markets and the broader economy.

The market for biodiesel was limited until Congress passed a $1 tax credit for each gallon of biodiesel blended in 2005. Since then, production has grown steadily, and in the last few years domestic production has approached 2 billion gallons. The production capacity of the industry is several hundred million gallons above that amount.

The tax credit has remained in place — albeit with a few temporary expirations that were retroactively restored — since that time.

Biodiesel production supports approximately 13% of the value of each U.S. bushel of soybeans.

“Much like the solar investment tax credit and the production tax credit for wind turbines, the biodiesel tax credit fostered a stable market that gradually boosted production, which lowered production costs and made the fuel more cost-competitive,” the report stated.

Details of the findings were released by the National Biodiesel Board and here are the impacts of the biodiesel tax credit by the numbers.

1. The tax credit supports 64,000 jobs and adds $15 billion annually to the U.S. economy.

2. The economic activity supported by those jobs generates $3.8 billion in wages and benefits and $1.8 billion in federal, state and local tax revenue.

3. Every 100 million gallons of production supports 3,200 jobs and $780 million in economic opportunity.

4. Without a biodiesel tax credit between 7,500 and 9,000 of those jobs would be lost as the domestic market would shrink and much of the remaining U.S. biodiesel would likely be imported.

5. In 2020, 62% of biodiesel was produced using soybean oil; corn oil accounted for 11%; canola oil, 9%; waste cooking oils, 9%; and animal fats, 9%.

6. Biodiesel emits 74% less greenhouse gases on a carbon dioxide basis, as well as 40% to 50% less methane than petrodiesel. In addition, biodiesel emits 50% less carbon monoxide, 60% less volatile organic compounds, 50% less particulate matter and 66% less hydrocarbons.

7. Monetary value of improvements in local air quality impacts associated with a change to soy-based biodiesel are up to $2.09 per gallon relative to petrodiesel, apart from any benefits from reducing greenhouse gases.

8. The nearly 2 billion gallons of biodiesel produced in 2019 reduced greenhouse gas emissions by 17.95 million metric tons of carbon dioxide equivalent emissions. The cumulative reduction since the tax credit’s inception exceeds 100 million metric tons.

9. Applying a value of $50 per metric ton as the social cost of carbon to the estimated greenhouse gas reduction, the authors estimate that the biodiesel industry produced $750 million in greenhouse gas reductions benefits to the U.S. economy.

10. U.S. consumers value the aggregate environmental, health and resource improvements generated by soy-based biodiesel at $3.89 per gallon relative to the impacts experienced under petrodiesel.

“We believe that ending the credit in 2022, when the current legislation providing for it expires, would be inadvisable and would likely devastate the market, resulting in the destruction of thousands of jobs, an increase in greenhouse gas emissions and other local air pollutants, and the undoing of much of what the previous 17 years accomplished — namely, the establishment of a robust market for an important fuel and an essential tool for reversing climate change,” according to the report.

“This report demonstrates how remarkably effective the tax incentive has been in supporting the emergence of biodiesel and renewable diesel,” said Kurt Kovarik, NBB’s vice president of federal affairs.

“As more and more American consumers demand better, cleaner fuels, a long-term and forward-looking tax incentive can help the industry sustainably grow and diversify. We appreciate the bipartisan support in Congress for continuing this policy.”