News From the
Committee on Small Business
Nydia M. Velázquez, Chairwoman

For Immediate Release                                                       CONTACT:  Alex Haurek; Duncan Neasham
March 4, 2009                                                                                                        (202) 226-3636

Renewable Fuels Industry Struggles in Flagging Economy  

WASHINGTON, D.C. —Confronted by a stagnant economy, tightened credit markets and a drop in demand, smaller renewable fuel producers are struggling to stay in business, industry experts told the House Small Business Committee today.  Ethanol and biodiesel production, which just a few short years ago was heralded as an opportunity to create rural jobs while bolstering energy independence, now faces severe challenges that are putting the industry’s viability at risk.

“Until recently, the biofuel industry had been a small business success story, revitalizing rural economies while reducing our dependence on foreign sources of oil,” said Rep. Nydia M. Velázquez (D-N.Y), the Chairwoman of the House Small Business Committee. “Now, these enterprises are struggling to stay afloat, finding themselves locked out of the capital they need, while demand for their product dwindles.”

Small businesses make up the overwhelming majority of the U.S. renewable fuels industry, which has grown dramatically during the last decade.  In just the last seven years, the number of biodiesel plants in the U.S. rose from nine facilities, producing 50 million gallons of fuel in 2001, to 176 plants in 2008, producing 2.6 billion gallons.  However, in recent months, as oil and gasoline prices have fallen, demand for biofuels has waned.   For instance, new ethanol plant construction has fallen off in the past six months and more than 25 plants have closed nationwide.

“Renewable fuel producers are being hit on both sides,” said Velázquez.  “Volatility in energy prices has affected demand for their product.  Meanwhile, they are feeling the effects of the credit crunch and an inability to access capital.”

At the hearing, biofuel entrepreneurs said investment in renewable fuels has dried up, diminishing hopes for a promising wave of second and third generation fuels such as cellulosic ethanol.  Energy experts agree that cellulosic ethanol production, which uses recycled paper waste, rice hulls, and switchgrasses, will help make biofuels competitive with foreign oil sources and also reduce the environmental effects of biofuel production and use.   However, with banks unwilling to lend to producers and the industry plagued by a shortage of venture capital, the investments needed to commercially produce future generations of biofuel are not being made.

“A fully developed renewable fuels industry offers the potential to grow our energy sources here at home,” said Velázquez.  “However, the current economic conditions are blocking the kind of investments we need to produce the fuels of the future.”

President Obama has singled out energy independence as one of his principal economic goals.  Velázquez said during the hearing that the Committee would continue advocating policies to protect smaller producers of renewable fuels as lawmakers turn to energy legislation later in the 111th Congress.

“A vibrant and successful renewable fuels industry will mean economic opportunity in rural areas, energy security for our nation, and a cleaner environment,” Velázquez said.  “These goals are too important to fall by the wayside and as Congress shapes future energy policy, this Committee will ensure that the small renewable fuel producers who have pioneered this field are not left behind.”

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To view video of the hearing, click here