Whether we are talking about biodiesel specifically or biofuels in general, which include bioheat heating oil, various ethanol blends or even SVO (straight vegetable oil), the rapid expansion of both demand for and supply of these fuels is evident. It's a great example of the free market at work but some of the activity in these markets is the result of individuals or companies chasing incentives and it's not clear that incentives are necessary.
The strongest incentives for alternative fuel are the rising price of regular fuel caused by insecure or insufficient supplies. As prices rise, consumers look for alternatives and producers step in with many options along with manufacturers who make equipment available that will work with some of the new fuels like E85. It's a very natural process.
There seems to be, at the same time, a growing number of tax incentives specifically crafted to prompt a move toward these alternative fuels which, though nice for the producers in the short run, may create a group of suppliers who are only in as long as incentives exist, ready to bolt at the first sign of new special incentives somewhere else. It's difficult to grow a long term, secure energy strategy on the basis of a patchwork of quick, politically appealing tax incentives.
Already we are seeing the American Soybean Association upset because of imported palm oil based biodiesel taking advantage of a tax incentive for domestic soybean oil and other domestically produced feedstocks which the IRS says can also be applied to tropical oil based fuels not grown in the US. I see the ASA's point, it makes no sense to give tax incentives to foreign farmers. What I question, however, is the need for any incentive in the first place. I also question a statement in an article that says:
The growth in anticipated U.S. biodiesel production is the result of enactment of the biodiesel tax incentive in last year’s JOBS bill. The incentive provides a $1 tax credit for each gallon of agri-biodiesel blended with petroleum diesel.
Although the incentive may be contributing to the growth, attracting producers who would not otherwise enter the market, it is by no means the only reason for the growth which would exist regardless.
The ASA goes on to ask for a tariff on imported biodiesel equal to the incentive. Great! Another regulation to offset a tax incentive and the patchwork grows with another layer of law we don't need.
Biodiesel and biofuels are a growth market right now and most likely will continue to be for the foreseeable future. We should dispense with incentives and let the market work.
Quote source: Southeast Farm Press