Biodiesel Tax Credit Impacts for Blenders, Producers

John Davis

us-capitol-fiscal-cliff-voteIf the biodiesel tax credit is extended, it could change the way producers and blenders value the incentive. This article from Biodiesel Magazine weighs how renewal of the federal $1-a-gallon biodiesel blenders credit could be changed to provide more incentives for producers.

If there is a possibility of the tax credit being reinstated retroactively for 2014, there would be a monetary value placed on the option to apply for and receive the tax credit when reinstated. Since the credit goes to the person blending the biodiesel from B100 to B99.9 by adding 0.1 percent ultra-low sulfur diesel (ULSD), buyers of biodiesel should pay a premium for B100 over B99.9. If there was no hope of the tax credit being reinstated, there would be no price differential between B99.9 and B100, and we can assume that the actual value of the premium for B100 over B99.9 is a function of the probability of reinstatement.

The article goes on to explain how the “Biodiesel Tax Incentive Reform and Extension Act of 2014,” sponsored by Sens. Maria Cantwell (D-WA) and Chuck Grassley (R-IA), would change the credit to a producer’s credit, and not one for blenders. That could change the calculus in figuring if it would pass as proposed, eliminating some options for the blenders out there.