No wonder soybean farmers are protective. In 20 years, growing feedstock for biofuels is predicted to be a $5 billion industry

The biodiesel industry is taking off, propelled by climate concerns, new tax breaks and high petroleum prices, although not necessarily in that order. Almost every state in the Midwest has a program to become the leader in producing biofuels.

News from Florida a few days ago has more than a few hopeful farmers in a snit:

"Riding a recent boom in alternative fuels, a Tampa company, EarthFirst, unveiled its first shipment Friday of foreign-made biodiesel imported from Ecuador. Trumpeted as the largest shipment of biodiesel to reach the United States, it was met by a firestorm of protest from American soybean growers, the nation's largest producers of biodiesel." --St. Petersburg Times, "Huge biodiesel shipment arrives"

This shipment was barely 6,400 barrels of fuel. The American Soybean Association nonetheless began lobbying Congress to ensure that foreign fuels are not eligible for tax credits, including those for biodiesel producers in the 2004 American Jobs Creation Act.

Lobbying against imported biodiesel
The U.S., with only three percent of the world oil and natural gas reserves, has few long-term prospects for independence from imported fuels. What we're seeing now might be early jockeying for position to protect one of them. And no wonder: in 20 years, growing feedstock for biofuels is predicted to be a $5 billion industry.

A former oil industry consultant looked into the possible future of biodiesel and blogged a fanciful scenario set in the year 2037:

"...Several senators accused the industry of collusion and price-fixing, while the biodiesel CEOs assured the panel that the recent doubling of biodiesel prices--and the resulting earnings bonanza for the industry--was entirely attributable to the summer drought and a persistent blight affecting canola and other oilseed crops..." --Energy Outlook, "Deeper Disincentives"

Biodiesel has investors' attention
Whatever the future fuel addiction of the U.S., biodiesel won't be the sole fuel. The beauty of alternative fuels is in their diversity. Biofuels has, however, shaped up as a serious player. Production in the U.S. started at virtually nothing five years ago, and has more than doubled each year. Corporations and investors are taking a stake in the industry. That's how software venture capitalist Martin Tobias got involved.

"We don't have an energy crisis," writes Tobias, "we have a petroleum crisis." Those familiar with the woes of the electric industry might not completely agree. Nonetheless, Tobias believes it enough to have taken over the reins of Seattle Biodiesel, and to evangelize on his blog Bits To Barrels and in frequent articles and appearances.

Farm subsidies shift to energy production
The Energy Act of 2005 included a Renewable Fuels Standard (RFS) that requires 7.5 billion gallons of biofuels per year in the national fuel mix by 2012.

Meanwhile, $25 billion in conventional crop subsidies targeted at U.S. farmers in 2005 are threatened by World Trade Organization rules against creating an unfair trade advantage. Legislators are looking at redirecting those subsidies into supports for the new agricultural energy sector -- in ways that exempt them from WTO rules.

The 2002 Farm Bill included an Energy Title that created a new set of programs to support energy production on farms. More support is expected in the 2007 Farm Bill, although Congressional funding of the supports is in question. Other federal and state subsidies and tax breaks also apply to biofuels.

Related article:
"Renewable Energy Grant Funds from USDA about to Expire for FY05"

Imported fuels have their own tangle of tax implications. EarthFirst's choice of a palm-based biodiesel, for example, was no coincidence: Palm oil products are exempt from import duties.

Domestic supply more secure than plentiful
The Energy Foundation recently released a report, "The New Harvest," saying that biofuels can eventually replace gasoline and increase the country's transportation energy security.

"The war in Iraq, staged as it is on the world’s second largest remaining oil reserves, makes clear the danger of the U.S. economy’s dependence on oil." --The New Harvest: Biofuels and Wind Power for Rural Revitalization and Energy Security, Nov. 2005

The report makes a case for domestically produced biofuels, and outlines an itiative for developing the industry. The initiative has the backing of five major foundations, including the Hewlett Foundation and the Packard Foundation.

Even with subsidies, grant funding, and biodiesel plants slated for several states, domestic production isn't likely to keep up with demand. I recently asked a trucking company president if his fleet had switched to biodiesel. His answer was simple: "We'd like to, but they can't make enough for what we need."

If biodiesel can't keep up with demand, it might be eclipsed by another fuel that can. Imports might be unavoidable, even with the risk of dependency.

Related article:
"Refineries Top Political Agenda in Both Washingtons"