How biodiesel tax credit may affect advanced biofuels landscape
A new post on the University of Illinois farmdoc daily website provides an update on how the reinstatement of the $1 per gallon biodiesel tax credit might impact 2013 renewable fuel standard (RFS) compliance. The post, written by Scott Irwin and Darrel Good of the university’s Department of Agricultural and Consumer Economics, points out that the 2013 RFS is expected to require the blending of 1.28 billion gallons of biodiesel and 2.75 billion gallons of all advanced biofuels.
The difference between those two mandates is what they call “undifferentiated biofuel,” which could be will most likely be met by either domestic biodiesel or Brazilian ethanol. In a post published in December, before the biodiesel tax credit was extended, the authors predicted that Brazilian ethanol would be the cheaper alternative to meeting the pool of undifferentiated advanced biofuel under the RFS, and would essentially limit domestic biodiesel production to 1.28 billion gallons and domestic ethanol to 13.17 billion gallons, assuming 700 million gallons of exports.
While the reinstatement of the biodiesel tax credit makes the advantage of Brazilian ethanol over biodiesel smaller, Irwin and Good note that there will still be an economic advantage for blenders to use Brazilian ethanol rather than domestic biodiesel. While both fuels will result in a loss to the blender, obligated parties will experience a lower loss when blending Brazilian ethanol. However, they also stress that this could change throughout the year. In fact, a 25-cent decline in the price of biodiesel could flip the economics, making it the more favorable fuel.
A full copy of the post, titled “Does the Biodiesel Tax Credit Change the Advanced Biofuel Landscape?” is available on the farmdoc daily website.