Help for Coronavirus-Stricken Biofuel Industry and Others is Needed Now!

May 13, 2020

The USDA announced last week that it intends to make available up to $100 million in competitive grants for activities designed to expand the availability and sale of renewable fuels. Given the harsh economic environment stemming from the coronavirus (COVID-19) pandemic, this is a welcome gesture from the Trump administration.

Compared to the relief that is being considered for the oil industry, it is still a meager response.

Changes made late last month by the Federal Reserve to a $600 billion loan program created to help small- and medium-sized businesses will lift the program’s lending restrictions and make oil firms eligible for loans. The Fed’s Main Street Lending program – part of the $2-trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act passed by Congress in March – was originally intended to benefit companies that had been doing relatively well until the pandemic outbreak and subsequent shutdown.

Program rules used to prohibit borrowing the low-interest emergency loans to pay off higher-priced liabilities. Now that the Fed has accepted the oil industry’s request to change the lending rules, the program money can be used to help at least 90 fossil fuel companies, including giants like ExxonMobil and Chevron, pay off a broader range of certain kinds of preexisting debts.

Critics say the rule change represents a bailout of the debt-burdened and financially strapped oil sector. The Fed’s move tracks a decades-long history of extremely generous government support for the oil industry, driving the United States to become the world’s leading oil and gas producer.

But areport issued three years ago by the Stockholm Environment Institute and EarthTrack showed that nearly half of the oil produced in the United States is dependent on a dozen U.S. federal and state subsidies, including corporate tax exemptions and reduced insurance costs. Essentially, taxpayer handouts have made the oil industry profitable.

Yes, the oil industry has taken a big hit, beginning with a Saudi-Russian price war that roiled markets before the coronavirus pandemic fully hammered the sector.

But an intense look must also be directed at the U.S. biofuel industry. More than 130 biofuel plants have already partially or fully shut down with the pandemic-driven plunge in motor fuel demand – now down to 50-year lows. The nation’s biofuel plants purchase annually more than one-third of U.S. corn and U.S. soybean oil. The loss of those markets will continue to push corn and soybean prices down dramatically, further depressing farm income, endangering up to 350,000 jobs and damaging a rural economy that has seen little upside over the past five years.

It should also be noted that the economic damage from the pandemic extends beyond the biofuel market, given that ethanol plants are the top supplier of carbon dioxide (CO2) to the food industry. The shutdowns have triggered commercial CO2 supply shortages, inhibiting the ability of the food and beverage sector to manufacture, preserve and supply food. Biodiesel plants provide critical demand for soybean oil, distillers corn oil, animal fats from livestock production, and recycled oils from restaurants. Reduced demand for these byproducts will increase the price of livestock feed – already inflated by shortages of dried distiller grains (DDGs), a high-protein animal feed produced by ethanol plants. All of these hits to the food chain are ultimately driving up consumer prices.

The March CARES Act did not include specific relief for biofuel facilities, though some were eligible under the act’s loan programs. Despite pleas from the industry to Agriculture Secretary Sonny Perdue, no industry-specific remedies were given. Another recovery measure – the $3-trillion HEROES Act – is headed to the House floor this week and offers, among a wide range of benefits for distressed sectors, dedicated relief for biofuels producers. The measure would establish the Renewable Fuel Reimbursement Program, which provides a 45-cent-per-gallon payment for qualified biofuel produced by eligible producers from Jan. 1 through May 1 of this year. The House is expected to take up the bill on Friday.

However, Senate Majority Leader Mitch McConnell (R-KY), says there is no urgency to take up another relief package, stating that his chamber will not consider additional assistance until after Memorial Day. His foot-dragging is an unfortunate sign that help for those economically damaged by this national pandemic may become pawns in a game of political posturing. Biofuel interests, and those representing the many groups in desperate need of emergency aid, are making a clear and compelling case to policy makers that action is needed now. SfL encourages all to reach out to their elected representatives in Washington and call on them to extend the support to the renewable biofuels industry that has been given to the fossil fuel industry.

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