Texas biodiesel loses state production incentive, outlook bleak

Texan biodiesel is facing a bleak future after biodiesel production incentives were discontinued by the state government. Under the old program, producers received a 16.8 cent incentive per gallon from the state. The incentive was capped at $3.6 million over 10 years, but helped offset the production cost of the first 20 million gallons of biodiesel.

The average Texas biodiesel plant makes 9 million gallons of fuel. Texas is the second-leading state in biodiesel production, with a projected 180 million gallons in 2007 from 20 plants. Iowa leads the nation with 200 million gallons produced by 11 plants. With other costs added, biodiesel producers say they are now paying about $3.50 per gallon just to make the fuel. By comparison, the retail price of conventional diesel was under $3 per gallon last week.

The loss of the incentive program in August, combined with the 50% rise in soybean prices to 40 cents per pound, potential elimination of a federal biodiesel tax credit and problems in the national credit markets, all spell trouble for the Texas biodiesel business.

Possible outcomes include plant closure or possibly consolidation to achieve greater economies of scale.

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