Startup’s Fate Relies on Tax Credit
A local startup has plans to turn grease from local restaurants into a profit, but the project’s future could hinge on the extension of a federal tax credit for biofuels.
DC Biofuels hopes to collect 32 million gallons of animal fats, vegetable oils and grease from local restaurants and recycle it into 4 million gallons of green biofuel for local trucks and buses.
A $1-per-gallon federal tax credit is currently available for the conversion, but it’s set to expire at the end of the year.
DC Biofuels President and CEO Wendell Jenkins said he hopes to have a plant up and running in the next year but has had a hard time getting a loan in today’s economic environment.
A House bill sponsored by Rep. Aaron Schock (R-Ill.) would extend the tax break through 2014, considerably brightening the company’s prospects.
“It’s not necessarily a deal-breaker if it’s not extended,” Jenkins said. “It just makes it harder to deal with the investment community. We’ve created different [financial] models that show how we’d perform with and without the tax credit. Without the credit, it changes our profit and rate of return and makes it a harder proposition.”
Lawmakers have extended the tax credit only in short bursts, so renewing it has been an ongoing struggle for the biodiesel industry.
The tax credit was created in 2004 as part of the Bush tax cuts in the American Jobs Creation Act and was renewed three times before expiring in 2009 and then being retroactively renewed late last year.
Rep. Collin Peterson wants to renew the credit beyond 2011. The Minnesota Democrat is among the co-sponsors of Schock’s bill.
“The biodiesel industry is still developing, and with the certainty of the biodiesel tax credit, we can continue to move forward and fully realize our renewable energy potential,” Peterson said in a statement.
Despite the uncertainty surrounding the credit, Jenkins said his company has made considerable headway in recent months. An increase in media attention, focused primarily on the novelty of converting grease into biofuel, has generated interest from the investment community, while restaurants need little incentive to participate in a cheap and environmentally friendly way to dispose of waste.
The Neighborhood Restaurant Group, which owns Birch & Barley on 14th Street Northwest, has already signed on.
“The restaurant community is very involved in sustainability. To them, it’s just part of being a good restaurant,” Jenkins said. “We tell them that by giving us their oils, they’re participating in keeping the environment clean. Also, most restaurants have to pay to have [the grease] taken away, and we collect it for free.”
In addition to a cleaner brand of fuel — Jenkins said his biodiesel creates an 80 percent reduction in greenhouse gases when compared to traditional diesel — DC Biofuels would also create jobs. Jenkins estimates his plant would create 25 jobs in the District and another 25 jobs for suppliers and distributors in the area.
Peterson also touts the tax credit as a job-creating incentive.
“Increasing the production of renewable energy is vital to creating jobs and growing our rural economy,” he said. “Unfortunately, by allowing the biodiesel tax credit to lapse, we’ve already witnessed a loss of jobs and production.”
Though Jenkins is looking to hire Washington residents, his commitment to operating locally extends beyond this. DC Biofuels would also collect local waste products and provide its biodiesel to school buses and trucks in the area.
“We’re not just creating jobs in D.C., we’re creating a whole new taxpaying entity,” he said. “But you have to give entrepreneurs something they can depend on. I understand there are budget issues, but you have to look at the future.”
While the House bill has bipartisan support, Congress has focused more on cost-cutting measures lately.
“The budget, that’s the biggest problem,” Peterson said. “It’s tough in this day and age to convince our colleagues to maintain tax credits. We’re just working on building support to convince our colleagues that this isn’t a huge amount of money and it could contribute to economic growth while getting people back to work.”