The $1 a gallon tax credit for biodiesel expired with the New Year, but there's a good chance that it will return as a retroactive credit in whatever energy bill gets passed.

The $1 tax credit, passed in 2004, helped biodiesel get off the ground. (The $1 applied to virgin oil--biodiesel from old oil got a smaller credit.). The credit, though, didn't completely insulate the industry from supply and demand. Rising feedstock prices and then declining diesel prices have meant financial headaches for many refiners in the past few years. The Energy Information Administration has already said that the U.S. won't likely hit its "100 million gallons by 2022" mandate until 2030. Many ethanol refiners had to sell off or close facilities in 2008 and 2009.

Will it be back? Probably. A form of the credit is in the House energy bill, senators like Max Baucus have promised to champion biodiesel in 2010 and alternative fuels tend to enjoy a strong level of support among investors, politicians and the public. Ask a stranger about algae fuel: they probably have an opinion. Plus, many of the refineries are in red states, so bipartisan support will exist. Republican Senator Charles Grassley has said he wants to bring it back. It can be made retroactive too.

But in the meantime, expect to see layoffs, says the Houston Chronicle.