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By Robert Rapier on Sep 23, 2008 with no responses

Games Politicians Play

In a bid to keep 1st generation biodiesel technology competitive with the more desirable 2nd generation variety, politicians have voted to keep a $1/gal tax credit for biodiesel made from food, but deny the credit for green diesel made from waste fats:

US Senate Bill Kills Tax Credit For Clean-Diesel Project

WASHINGTON -(Dow Jones)- A U.S. Senate vote Tuesday on tax legislation could be the death knell for a partnership between ConocoPhillips (COP) and Tyson Foods Inc. (TSN) that promised to generate as much as $175 million in tax credits annually through the production of cleaner-burning diesel fuel.

Soap makers and producers of biodiesel, a diesel additive made from vegetable oil, joined lobbying forces to help kill the $1 per gallon tax credit for the Tyson-ConocoPhillips venture.

The Senate legislation would renew for one year the $1 per gallon federal tax credit for biodiesel production, but would end it for the kind of renewable diesel made in the ConocoPhillips-Tyson deal. That partnership takes beef tallow, or fat, from Tyson’s food-processing operations and blends it with diesel fuel, using ConocoPhillips existing refinery facilities.

“Without the $1 per gallon credit, it is highly unlikely that this venture could continue,” said Jeff Webster, senior vice president and general manager of Tyson’s renewable-products division.

In addition, unlike other biofuels such as biodiesel or ethanol, the renewable diesel doesn’t use a food-based feedstock. Biofuels have drawn criticism for driving up food prices and contributing to a worldwide food shortage, though economists debate how much of an impact biofuel subsidies have had.

“This is a second-generation technology that uses animal fats instead of food. Why would you want to create an economic situation that shuts that down?” Webster said.

I spoke today during my ASPO presentation about politicians failing us by attempting to choose technology winners. In this case, they are selectively subsidizing one technology over another, and doing so for 1). Special interest reasons; 2). General animosity toward oil companies. I find it especially frustrating that Congress thinks it is a good idea to create disincentives for oil companies to produce alternative energy.

This is another reason I favor higher carbon taxes. You level the playing field for these alternative technologies to compete with each other, instead of trying to skew technology in a specific direction.

For additional background information, I have written several essays in the past on this deal:

The Biodiesel Lobby Cries Foul

Are Subsidies to Oil Companies Ever Justified?

Biodiesel’s Green Diesel Nightmare

Full Disclosure: I do own ConocoPhillips stock.