Many problems in public policy are government-created, and the best solution is not more government. Unfortunately and predictably, solutions involving more government will be supported by groups that are short-sighted and will benefit directly from them.
As the latest illustration of this, biodiesel producers in Missouri are calling for extending the $1-per-gallon biodiesel blender’s federal tax credit. In its Friday issue, the St. Louis Business Journal published two articles that profile a struggling biodiesel plant as it waits for extended handouts from the government.
Meanwhile, there exists a lack of demand for biodiesel in the market, and the government has responded by setting a mandate to create an artificial level of demand. From one article:
Environmental mandates that require oil companies to blend petroleum-based diesel with minimum levels of biodiesel […] have increased demand, and therefore prices, for biodiesel and helped offset the loss of the expired tax credit.
The problem with mandates and production subsidies like those for biodiesel is that the government is encouraging energy producers to invest in an infrastructure that is neither efficient nor cost effective. Residents of Missouri and other states could achieve higher levels of utility if government stayed out of the market and allowed the profit-and-loss system to allocate resources. As another positive consequence of eliminating handouts to biodiesel producers, fewer resources would be distracted from the development of other alternative energies that are perhaps more viable.
