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ECONOMIC IMPACT OF REMOVING THE 

BIODIESEL TAX CREDIT FOR 2010 

AND IMPLEMENTATION OF RFS2 TARGETS THROUGH 2015

 Prepared for the National Biodiesel Board

John M. Urbanchuk

Technical Director

June 8, 2011 Revised

The lapse of the biodiesel tax credit in December 2009 had a significant negative 

impact on the biodiesel industry as well as the overall economy in 2010. The retroactive 

reinstatement and extension of the tax incentive through December 31, 2011, combined 

with expanded use of biodiesel consistent with the Advanced Biofuels targets provided 

for under the federal Renewable Fuels Standard (RFS2), will support additional jobs in 

all sectors of the economy, increase value added output measured by GDP, and 

generate additional household income for all Americans.

Impact of Removing the Biodiesel Tax Credit for 2010

Since its enactment in 2004, the unique structure of the $1.00 per gallon biodiesel tax 

incentive has played an important role in the fuels marketplace. Specifically, the 

incentive’s structure as a blenders excise tax credit allows the credit’s value to be 

reflected in the market price of the fuel, thus making biodiesel price competitive with 

petroleum diesel fuel and reducing fuel costs for consumers. 

The lapse of the biodiesel tax incentive on December 31, 2009 resulted in a sharp 42 

percent drop in biodiesel production for all of 2010. The limited 2010 U.S. biodiesel 

production was primarily in response to individual state blending requirements and 
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incentives, and despite the regulatory implementation of the RFS2 target for Biomass-based 

Diesel in July, 2010, U.S. biodiesel production fell 42 percent to 315 million gallons.1 The 

decline in biodiesel production is illustrated in Figure 1. An examination the data presented in 

Figure 1 points out two interesting events: First, biodiesel producers increased output just prior 

to the lapse of the tax credit in December, 2009 to meet the market’s demand for less 

expensive fuel in the upcoming year. Second, biodiesel production expanded substantially in 

the first four months of 2011 following reinstitution of the credit in December 2010.

0

20

40

60

80

Mil Gal

Figure 1

Monthly Biodiesel Production

As a direct consequence of the 42 percent decline in biodiesel output in 2010, biodiesel 

producers sharply cut operating rates, idled capacity and reduced purchases of feedstocks and 

other inputs needed to produce biodiesel. The biodiesel industry spent an estimated $1.1 billion 

to produce 315 million gallons of biodiesel in 2010, 32 percent less than the $1.6 billion spent to 

produce 545 million gallons in 2009. 

 

1

Biodiesel production estimated from monthly methyl ester production published by the Census Bureau in Current 

Industrial Report M311K - Fats and Oils: Production, Consumption, and Stocks

Source: Census Bureau Current Industrial Reports M311K 
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Since the expenditures for raw materials and other inputs to manufacture biodiesel represents 

the purchase of output of other industries, a decline in output reverberates throughout the entire 

economy.2 

As a direct consequence of the drop in biodiesel output, real GDP was reduced by $879 million 

(2009$) and household income was reduced by $485 million.3 The lower level of economic 

activity also reduced the number of jobs in all sectors of the economy. The biodiesel industry 

supported nearly 21,300 jobs in all sectors of the economy in 2009. The lapse of the biodiesel 

tax credit in 2010, despite Congress’ eventual decision in December, 2010 to seamlessly extend 

the credit, led to the elimination of nearly 8,900 jobs throughout the entire economy in 2010. The 

distribution of jobs by industry supported by biodiesel production in 2010 and change from 2009 

is illustrated in Table 1.

Table 1

Jobs Supported by Biodiesel Production: 2010 versus 2009

2009 2010 Change

Agriculture 164 102 -62

Construction 327 186 -141

Manufacturing 1,664 958 -706

Trans & Pub Utilities 1,853 1,054 -799

Wholesale/Retail Trade 2,562 1,524 -1,038

Services 14,279 8,332 -5,947

Other Sectors 436 251 -185

Total 21,284 12,407 -8,877

Economic Impact of Meeting the RFS2 Biomass-based Diesel Targets

As indicated earlier, the seamless extension of the biodiesel tax credit through December 31, 

2011 was largely responsible for the 69 percent increase in biodiesel production in January 

2011. The tax incentive is accompanied by minimum targets for Biomass-based Diesel under 

the Renewable Fuels Standard (RFS2), as provided for under the Energy Independence and 

Security Act (EISA) of 2007. Under the RFS2 volume targets announced in November 2010, 

 

2

Expenditures for feedstock and energy were estimated using 2010 calendar year average prices sourced from 

USDA Economic Research Service, Agricultural Marketing Service, and the Energy Information Administration.

3

 All dollar estimates and projections in this report are expressed at constant 2009 prices.
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the use of Biomass-based Diesel is set at 800 million gallons for 2011 and 1 billion gallons for 

2012. While the targets beyond 2012 have not been published, statute gives the Administrator 

of the Environmental Protection Agency (EPA), in consultation with the U.S. Department of 

Agriculture (USDA) and the Department of Energy (DoE), the authority to increase the Biomassbased Diesel beyond the minimum 1 billion gallon requirement. As the industry has both ample 

production capacity and available feedstock to exceed 1 billion gallons of annual qualifying 

domestic production we assume that from 2013 through 2015, the RFS2 Biomass-based Diesel 

requirement is increased to 1.3 billion gallons in 2013; 1.6 billion gallons in 2014; and 1.9 billion 

gallons in 2015. 

$0

$2,000

$4,000

$6,000

$8,000

$10,000

0

500

1,000

1,500

2,000

2009 2010 2011 2012 2013 2014 2015

Mil $

Thou Gal

Figure 2

RFS2 Biomass Biodiesel Targets 

and Industry Expenditures

Methodology

We estimate the impact of the tax credit and RFS2 targets on biodiesel production and the 

economy by applying expenditures by the relevant supplying industry to the appropriate final 

demand multipliers for value added output, earnings, and employment. To understand how the

economy is affected by an industry such as biodiesel production it is necessary to understand 

the way in which different sectors or industries in the economy are linked to each other. For 

example, in the renewable fuels production sector, the biodiesel industry buys, among its varied 

feedstocks, soybean oil from the oilseed processing industry, which, in turn, then buys soybeans 
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from the agriculture sector, which purchases crop production products and fertilizers from the 

agricultural chemicals industry, which in turn purchases from a range of other industries. These 

are referred to as backward linkages. Use by other sectors of natural gas as an input, such as 

in manufacturing operations, is called a forward linkage. The natural gas production and 

transmission industries are linked through both forward and backward linkages to other 

economic sector.

The household sector is linked to all sectors as it provides the labor and management needed 

by each. In turn, changes that affect the incomes of the household sector typically have more 

significant impacts compared to a change in the sales of other sectors. This is because 

households typically spend most of their income in both retail and service industries.

This study utilizes an economic model known as IMPLAN (Impact Analysis for Planning) to 

develop this understanding of the economy, including the sectors that support the biodiesel

industry, the links between them, and the level of economic activity. IMPLAN is a commonly 

used economic input-output (I-O) model. I-O models are constructed based on the concept that 

all industries within an economy are linked together; the output of one industry becomes the 

input of another industry until all final goods and services are produced. I-O models can be used 

both to analyze the structure of the economy and to estimate the total economic impact of 

projects or policies. For this analysis, a model for the U.S. economy was constructed using 

2009 IMPLAN software and data (the most recent available) and used to estimate economic 

impacts of the biodiesel industry.

IMPLAN models provide three economic measures that describe the economy: value added;

income; and employment. 

 Value added is the total value of the goods and services produced by businesses in the 

county and are generally referred to as GDP. It is equivalent to the sum of labor income, 

taxes paid by the industry, and other property income or profit.

 Labor income is the sum of employee compensation (including all payroll and benefits) 

and proprietor income (income for self-employed work). In the case of this analysis, 

demand for soybean oil to produce biodiesel supports farm income through higher crop 

receipts than would be the case without biodiesel production. The impact of this higher 
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farm income is evaluated on a gross basis in this analysis. That is, the model does not 

factor in the distributional effects on consumers from higher soybean or soybean oil 

prices (i.e. reduced spending on non-food goods and services).

 Employment represents the annual average number of employees, whether full or parttime, of the businesses producing output. Income and employment represent the net 

economic benefits that accrue to the region as a result of increased economic output. 

Results

Expansion of biodiesel production consistent with RFS2 targets will provide a stimulus to the 

economy in terms of expenditures for feedstocks and other inputs, goods and services required 

to produce biodiesel. According to the EPA, as of March, 2011, there is currently in excess of 

2.12 billion gallon of Biomass-based Diesel production capacity registered under the RFS2 

program. 

As illustrated in Figure 2, expenditures by the biodiesel industry to meet RFS2 targets are 

expected to increase from $3.4 billion in 2011 to nearly $8.2 billion by 2015. As these 

expenditures circulate through the economy, they will generate valued added output (GDP) and 

household income, and support jobs in all sectors of the economy. The economic impacts of 

meeting the RFS2 targets are summarized in Table 2.

Table 2 

Economic Impacts of Meeting RFS2 Targets for Biomass-based Diesel

Employment Income GDP

(Jobs) (Mil 2009$) (Mil 2009$)

2009 21,284 $1,152.4 $2,085.3

2010 12,407 $667.4 $1,206.4

2011 31,227 $1,690.9 $3,059.8

2012 39,027 $2,113.4 $3,824.2

2013 50,725 $2,746.9 $4,970.6

2014 62,421 $3,380.4 $6,117.0

2015 74,118 $4,013.9 $7,263.3
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Employment

Jobs are created from the economic activity supported by biodiesel production. When the 

direct, indirect and induced jobs supported by biodiesel production and the industries that 

support biodiesel such as agriculture; feedstock collection and processing; fuel distribution; and 

technical support, the production of biodiesel to meet the RFS2 targets will support more than 

74,000 jobs in all sectors of the economy by 2015. The employment impacts of meeting the 

RFS2 targets are summarized in Table 2.

Income

Economic activity and associated jobs produce income for all households. The economic 

activities created by meeting the RFS2 targets would place nearly $14 billion in the pockets of 

American households between 2011 and 2015.

Biodiesel represents a relatively small share of total diesel use and although domestic 

consumption will grow consistent with the RFS2 targets, biodiesel share of total diesel use will 

remain small, increasing from an estimated 1.6 percent of diesel fuel use in 2011 to 3.4 percent 

by 20154. Continuation of the biodiesel tax credit has a meaningful impact on consumers when 

the RFS2 targets are met. Consumers are not expected to experience any significant increase 

in expenditures for biodiesel at a five percent blend if the biodiesel tax credit is extended. 

However, removing the tax credit will cost consumers an additional $6.6 billion for diesel fuel 

between 2012 and 2015

Value Added Output

The economic activity generated by the spending of biodiesel producers to meet the RFS2 

targets will expand the size of the economy. As indicated earlier, this spending represents the 

purchase of output of other industries. The circulation of these dollars throughout the economy 

is reflected in additional value added output measured by GDP. As shown in Table 2, the 

biodiesel industry will support $3 billion (2009$) of GDP in the American economy in 2011. As 

production expands, this contribution will grow to $7.3 billion by 2015.

 

4

Biodiesel share were calculated and estimated using RFS2 volumes and diesel use projected by EIA in 

the 2011 Annual Energy Outlook, Early Release Table 11.
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Other benefits

The use of biodiesel has several significant additional benefits.

 First, as discussed above, the economic activity supported by the biodiesel industry will 

generate additional business for transportation companies that will, in turn, generate 

additional revenue.

 Since biodiesel is a naturally low sulfur fuel and provides significant lubricity benefits, 

maintenance costs for users of biodiesel blends are likely to be lower than for petroleum 

diesel fuel.

 Research published by the National Renewable Energy Laboratory (NREL) and 

accepted by EPA indicates that biodiesel blends have superior environmental 

performance benefits, including significant reductions in total hydrocarbons; particulate 

matter; carbon monoxide; cancer causing agents such as polycyclic aromatic 

hydrocarbons (PAH) and nitrated PAH compounds; and lifecycle greenhouse gas (GHG) 

emissions, when compared to petroleum diesel baseline levels. 

 The use of biodiesel reduces particular matter (PM) emissions by as much as 40 percent 

compared to petroleum diesel. According to the California Air Resources Board and 

American Lung Association, particulate matter from diesel emissions contributes to 

2,000 premature deaths in California and as many as 15,000 premature deaths 

nationwide every year.5 Reducing exposure to diesel emissions through the increased 

use of biodiesel will have potentially significant implications for the health and welfare of 

all Americans as well as the economy through reduced health care expenditures and 

increased productivity. An assessment of public health implications of diesel emissions 

prepared by the West Coast Collaborative, a public interest group aimed at improving air 

quality reports that an EPA analysis estimated that a voluntary diesel retrofit program 

aimed at reducing diesel emissions would create as much as $2 billion in health benefits 

 

5

“Recent Research Findings: Health Effects of Particulate Matter and Ozone Air Pollution,” California Air 

Resources Board and American Lung Association, January 2004, 

http://www.arb.ca.gov/research/health/fs/PM-03fs.pdf.
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from reduced health care expenditures associated with premature deaths, hospital visits, 

and other costs.6

 The use of biodiesel displaces petroleum based diesel fuel and improves U.S. energy 

security by reducing dependence on oil imports. According to the EIA the U.S. imported 

62.6 percent of the crude oil required to refine finished petroleum products in 2010. As 

shown in Table 3, meeting RFS2 targets for Biomass-based Diesel will displace 151 

million barrels of crude oil by 2015. This is the amount of crude oil required to produce 

the amount of No.2 diesel equivalent to 1.9 billion gallons of biodiesel.

Table 3

Crude Oil Displacement by Biodiesel

No.2 

Diesel Crude Oil

B100 Equivalent Required

(Mil gal) (Mil gal) (Mil bbl)

2009 545 500 44

2010 315 289 25

2011 800 734 64

2012 1,000 917 79

2013 1,300 1,193 103

2014 1,600 1,468 127

2015 1,900 1,743 151

 Expansion of the biodiesel industry will generate additional tax revenues for government at 

all levels from personal and corporate income taxes that increase in line with higher output 

levels and increased income. Meeting the RFS2 Biomass-based Diesel targets as 

described above can be expected to generate an estimated $345 million of additional tax 

revenue for the Federal government and $283 million of revenue for State and local 

governments this year. Expansion of the biodiesel industry will generate $873 million in 

revenue for the Federal Treasury and $718 million in State and local government revenues

by 2015. 

 

6

“Public Health and Environmental Impacts of Diesel Emissions”. West Coast Collaborative. Available at 

http://www.westcoastcollaborative.org
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Conclusion 

Elimination of the biodiesel tax credit for 2010 resulted in a 42 percent decline in biodiesel 

production that cost the economy nearly 8,900 jobs. However, the reinstitution of the tax credit 

combined with expanded biodiesel use targets under the RFS2 will stimulate the economy by 

supporting value-added output (GDP), household income, and will support jobs in all sectors of 

the economy.

The increase of biodiesel production from 800 million gallons in 2011 to 1,900 million gallons in 

2015 will support $7.3 billion of real GDP by 2015; support more than 74,000 jobs throughout 

the economy; and generate nearly $1.6 billion in federal, state and local government tax 

revenues by 2015. 

Consumers also will benefit. Meeting the RFS2 Biomass-based Diesel targets will put nearly 

$14 billion of income in the pockets of American households between 2001 and 2015. These 

impacts will continue to grow last as long as production continues and will increase as the 

industry expands. Removing the biodiesel tax credit at the end of 2011 would have a significant 

negative impact on consumers forcing them to spend an additional $6.6 billion for diesel fuel 

between 2012 and 2015.