By Rob Moritz
Arkansas News Bureau
LITTLE ROCK — When Pinnacle BioFuels opened in Crossett in 2008, renewable fuels and reducing America’s dependence on foreign oil were on everybody’s mind.
A year earlier, the Legislature had approved the Arkansas Alternative Fuels Development Program to help jump-start the industry in the state with incentive grants.
Several proposed biodiesel plants took advantage of the incentive grants and at the end of last year there were three fully operational plants in Arkansas.
Fast forward to the present. Just one biodiesel plant is still running in the state, FutureFuel Corp. in Batesville, which is operating at less than 20 percent of capacity.
Pinnacle BioFuels in Crossett and Dewitt Oil and Seed Enterprises, formerly Arkansas SoyEnergy Group, have temporarily shut down.
Nationally, biodiesel production is down more than 80 percent.
Industry officials blame the slow down in biodiesel production on the shaky economy and congressional inaction on reinstating a $1 federal tax credit for blending the fuel with standard diesel. The credit expired Jan. 1.
When Congress reinstates the tax credit, the industry will begin to improve, some officials say. Others are optimistic that biodiesel production is on the way back, with or without the tax credit, because of new federal mandates.
Biodiesel is the fuel made from switch grass, soybeans or other renewable sources. It also can be made from animal fat.
The fuel can be used in diesel engines, but it is usually used as a blend with diesel. It is not readily available in Arkansas. In fact, it is sold at just 20 biodiesel distributors across the state, according to biodiesel.org.
Because biodiesel is more expensive to produce than regular diesel, producers had been relying on a $1 federal tax credit to help them lower the cost and make it more competitive with regular diesel fuel.
The tax credit, which first went into effect in 2004, was last extended in 2008.
The tax credit was attached to the Tax Extenders bill, a controversial measure that includes stimulus programs and numerous other tax credits. The measure passed the House but has stalled in the Senate.
U.S. Sens. Blanche Lincoln Mark Pryor, both D-Ark., said last week they support the biodiesel tax credit and are working to get it passed.
Until it does, production is Arkansas is “pretty much dead in the water,” state Agriculture Secretary Richard Bell said recently.
“There has hardly been any biodiesel production nationally and in Arkansas,” Bell said.
Mike Hartness, plant manager of Pinnacle BioFuels, said his plant went idle at the beginning of the year because of the economy and the loss of the $1 federal tax credit.
“Right now, without that tax incentive, with the price of feed stock and the way the economy is, it costs about as much to make the fuel as what we can get for it,” Hartness said last week. “With the economy the way it is, we kind of need that tax credit to make any money.”
Ronnie Goodwin, general manager of Dewitt Oil and Seed Enterprises, said his plant has not produced biodiesel fuel in some time. His company purchased the facility from Arkansas SoyEnergy Group in April and plans to start producing again once Congress approves the $1 tax credit.
“That’s the plan at this time,” Goodwin said.
Gary McChesney, chief technical officer for FutureFuel Chemical Co. in Batesville, agrees the loss of the tax credit has hurt, but he believes new federal mandates could turn things around.
The Energy Independence and Security Act, passed by Congress in 2007, sets annual targets for biodiesel production, based on volume.
This month, the Environmental Protection Agency finalized rules to implement the congressional mandate that the U.S. increase its biodiesel production to 36 billion gallons by 2022.
Under new EPA rules, 800 million gallons of biodiesel must be produced in 2011, up from 650 million gallons this year.
“So even without the biodiesel tax credit, we believe there is a reasonable possibility that the business will start coming back as various fuel suppliers, blenders, start to meet their obligations under the renewable fuels standard,” McChesney said.
“The federal mandate is starting to take effect, so I believe that it is going to have a positive impact over time,” he said.
Bell said he hopes Congress approves the $1 tax credit soon and makes it retroactive to Jan. 1.
The agriculture secretary also said the state’s Alternative Fuels Development Program, Act 873 of 2007, does its part to support the biodiesel industry in Arkansas.
Under the program, $16 million was made available through grant funds to companies that make fuel from agriculture or wood products, to farmers who grow crops used in the production and to companies that distribute the fuel.
Since July 2007, $7.3 million in grants has been distributed, Bell said. FutureFuel in Batesville has received $4.7 million in the form of two production grants.
Other biodiesel companies receiving production grants include Tornado Patriot Biofuels in Stuttgart, which is not operational, Pinnacle BioFuels and the former Arkansas SoyEnergy.
One feed stock processing grant of $2 million has also been awarded to the former Arkansas SoyEnergy for a new soybean processing plant, and 12 $50,000 distribution grants also have been awarded, Bell said.
