Renewable Fuel Producers Lack Credit While Demand Dwindles

March 5, 2009 8:01 p.m. EST

Washington, D.C. (AHN) - Smaller renewable fuel producers are struggling to stay in business in the face of a stagnant economy, tightened credit markets and a drop in demand.

Representatives from the industry revealed this predicament during Wednesday's hearing of the House Small Business Committee.

"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 committee's chair. "Now, these enterprises are struggling to stay afloat, finding themselves locked out of the capital they need, while demand for their product dwindles."

Falling oil and gasoline prices caused a drop in biofuels demand leading to the closure of more than 25 ethanol plants nationwide and the slowing down of construction of new plants in the past six months, according to the committee.

At the hearing, biofuel entrepreneurs said banks' unwillingness to lend to producers and the shortage of venture capital are stalling the development and production of promising biofuels such as cellulosic ethanol, which uses recycled paper waste, rice hulls, and switchgrasses.