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.

13 thoughts on “Games Politicians Play”

  1. Have you heard this one? From Hugo Chavez:

    “I nationalize strategic companies and get criticized, but when Bush does it, it’s OK,” Chavez said on weekly television program Sept. 21. “Bush is turning socialist. How are you, comrade Bush?”

  2. The Fed seems to think it can break the 10,000 year old pattern of economic cycles. Just bail out enough morons,and we can forestall recessions indefinately. Wish ’em luck with that. Commodities did somersaults yesterday on the hope the Fed can pull it off. We need a recession. Recessions are healthy. Borrowing 100’s of billions to bail out morons who made 100’s of billions in bad loans isn’t.

  3. Dear Robert,

    I appreciate all the many hours of effort which you have spent on your energy blog. I know that you have spent many sleepless nights pondering absurd questions from ignorant persons.

    You have endured insults and spent countless hours editing your thoughts in order to make sense of the energy question.

    Few who subscribe to this blog understand the toll in time that this must cost your family. I am sure that many times you have thrown up your hands and said to yourself: “Why do I do this?”

    I think everyone on the blog ought to give you a vote of thanks for providing factual and timely information about what is going on in the oil scene from future exploration to the fluctuations of the market.

    John McKelvey
    Kosse, Texas

  4. There are times I wonder if the U.S. will ever develop an even mediocre energy policy.
    The Bushies have had eight years, and what have we got? And they controlled the House, Senate, White House, and Supreme Court for six of those eight years.
    Now we have El Presidente Bush-o in the love nest with Huge Chavez.
    Actually, Chavez is not quite as far to the left as Bush. My undestanding of this Bush banco-bail-out is that we will socialize the losses, but privatize the gains.
    And still, where is an energy policy that would leave us free to tell Chavez to shove it?
    “Guys and gals” (quoting S. Palin, our future el presidente), look to France, Thailand, Switzerland, Germany, or Australia. I think those countries have futures, and actually have national governments that attempt to tackle economic issues. There may be other countries too. If so, please post them here — I want to know my options.
    And yes, RR does a great job, and I wish he were prezzy, not that decadent fool we have running the show now.

  5. Being a hippy-esque guy who rides his bicycle everywhere all year, I have several friends who I can safely call extremeists. They just don’t want to understand or believe the possibility that big oil could play an important role (physically and financially) in renewable/alternative energy. Their stubornly polarized outlook drives me crazy!

    Hasn’t anybody ever imagined themselves in the shoes of the oil company executives? Why should we be suspicious that oil company executives want to watch their companies die when oil runs low? On doomsday, what is their money going to buy? Who will have anything to sell? I hear wind turbines are a good investment. The last time I checked, wind turbines held together with corn starch got kinda soggy when it rains. the wood blades are too small for industrial use.

    Maybe windmill/epoxy/petrochemcial companies will see a lot of demand for petroleum and buy my oil at a record high price! I may double my profits, and get some fat wind powered dividends, woo freakin’ hoo. Maybe I should invest in petroleum derived Photovoltaics and Fuel Cell membranes too. I can charge a lot for my oil and make bank on its products too. Hot damn I’m rich and a big deal, I feel great! I’m a callin’ Hugh Heffner, Smithers, where’s my hybrid powered Yaght?!!

    Is my imagination far fetched? I’m sure there’s some reason I’m not rich, influencial, or a big deal.

  6. Incredible stupidity! Politicians, eh?

    RR, Do you have an email address for the Congressman/Senators responsible for this bull $…?

  7. Gee Benny, I don’t recall any great energy policy initiatives under Bill “Let the good times roll” Clinton. Maybe because oil was less than $20/bbl. And which party has blocked development of our own oil resources here in the US, and blocked nuclear power for 30 years? IMO there is plenty of blame to go around.

  8. Annonymous, in free Merica you can call me stupid, and I can write stupid, but I can be. I’m a bigger deal than you because I exist. Get a name, and I’ll get a pet. ETM

  9. Evan,

    RBM, RBM is the name.

    And what I forgot on the previous post – 😉

    Sorry for my poor attempt at humor. Just so you know, I am glad to have you posting here, given your age. (I’m kinda an ole’ fart). The next generation gets this mess. I’m just trying to do my part, to make my own sphere of influence less messy 😉


  10. This would have provided added value to the packers product and allowed for them to higher pricers for livestock. Which could potentially help offset the disastrous economic impact biofuel mandates have had on the livestock business.

    However the soap makers wanted cheap fat to use in their product and grain lobby did not want the competition so they killed the tax credit.

    Another illustration that hoping for a responsible energy policy out of congress is a fools errand.


  11. benny,

    Entertaining, but ignorant screed.

    I assume you do realize that legislation is written in congress and signed by the president after it is passed out of congress.

    I prefer to keep partisan politics away from this blog, however it should be pointed out to you(apparently you missed the fact) that the democrat controlled congress has done absolutely nothing to produce or pass any kind of productive energy policy.

    We have a profoundly dysfunctional political class in Washington DC.

    We might get a better class of politician if folks like you on both sides of the partisan divide paid attention to actions not party affiliation.


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